published August, 2007 - Society of Actuaries: Long Term Care Section Newsletter, and InsuranceNewsNet, September, 2007, ProducersWEB, September, 2007, posted on SmartBrief
Aging and Long Term Care Insurance: A National Policy Perspective
September, 2007
Introduction
The aging baby boom generation and the burgeoning long term care financing crisis that lays in their wake has been a subject of national discussion for well over a decade. No one institution, be it public or private, will be able to handle the care of our nation’s aging population alone. The debate about this issue has been ongoing since the administration of FDR conceived of social security and then Lyndon Johnson ushered in the era of Medicare and Medicaid.
We were fortunate enough recently to sit down with Robert Blancato, a principal and president of Matz, Blancato & Associates at their K St. office in Washington, DC to discuss the perspective of national policy makers about the current state of the Long Term Care Insurance industry. Mr. Blancato is a recognized expert and leader on the topic of aging, having spent 30 years in Washington, DC involved in this issue. He was Staff Director on the House Select Committee on Aging’s Human Services Subcommittee from 1977-1988. He currently serves on the Policy Committee and Executive Committee of the 2005 White House Conference of Aging, as appointed by Speaker of the House Rep. Nancy Pelosi. He was Executive Director of the 1995 White House Conference on Aging, as appointed by the President of the United States. In 1998, he was a delegate to the White House Conference on Social Security. Mr. Blancato has worked closely with the insurance industry over the years through numerous initiatives with the major trade organizations and carries of Long Term Care insurance, and he serves on the boards of numerous advocacy and charitable organizations with the mission of improving the quality of life for the aging.
Q & A
Q: Recently in the New York Times there was an article about Long Term Care insurance claims practices. What is your opinion of that article?
A: The article was an unfortunate example of journalistic opportunism to create a more sensational “expose” than was deserved. First of all, the article was written about the practices of one company, but the way in which it was portrayed would lead many to believe that this was how an entire industry conducts its business. That is unfair journalism and it could not have been done at a worse time. This country needs to focus its energies on creating comprehensive solutions to deal with the coming crisis in financing the care of our aging population. Fear mongering and casting an unfairly wide net do not help us attain the real goal of harnessing the collective energies and resources of the private and public sectors in finding ways to ensure an appropriate quality of life for those who can no longer care for themselves.
As is the culture of Washington, DC during a national election cycle, I would not be surprised to see hearings on this issue as inquiries by the major candidates for President have gone to GAO (the Government Accounting Office) looking into discrepancies between Long Term Care insurance and Medicaid funding for services rendered. This is time and energy that should be spent on solutions and unfortunately could end up instead being spent on investigations.
Q: Where are there examples of positive dialogue and progress on this issue?
A: One of the better examples that I can point to is the 2005 White House Conference on Aging. This is a once a decade gathering of a cross section of disciplines, interest groups, and experts from across the United States, with delegations sent from every state, that has been hosted by the President of the United States since President Truman in 1950. The mission statement of the conference (as enacted by law 85-908) is to, “promote the dignity, health, and economic security of older Americans.” 1,200 delegates worked together to prioritize 50 major issues that would impact the aged over the next decade. Second only to renewing the “Older Americans Act” (originally enacted as a result of the 1961 Conference on Aging), the delegates called for a national strategy and effort to address issues around quality, choice, financing, and defining roles and responsibilities for long term care of the elderly as their highest priority.
In my opinion this recommendation from the Conference report is a blue print for action that represents the thinking of the best minds from every state in the Union and should be taken up by Congress immediately. The report acknowledges the fact that this is a task too big for any one sector or institution and that the crisis is a ticking time bomb that should be moved to the front burner—before we are forced to operate in crisis mode.
Q: How do you explain the delays in taking real action and responsibility on the political and consumer fronts?
A: Unfortunately it is human nature to wait until there is a crisis to act. Although the prospect of living in nursing home that is funded by Medicaid dollars, and the quality of life that would afford is a bleak sounding future, it seems so abstract to us that we either ignore or are unwilling to believe that could be our fate. Priorities that are here and today command our attention and dollars, and too many of us delay getting ready for the final days until it is too late. It is the same dynamic for law makers. They are concerned about spending priorities and budgets that will have immediate impact and the “long term care crisis” can seem like it is a long time away, and then it slips on the list of priorities. Unfortunately the end results for us as individuals and as a county if we delay are the same—too little, too late and a poor quality of life as the end result.
Q: What are some potential “tipping points” to spur action?
A: Any significant efforts to reform entitlements will create a whole lot of action on this issue. But remember, this is the third rail of politics and not many dare touch it. A couple of examples of attempts to make changes that would have an impact in this area include: tightening asset transfer rules which would make it more difficult to qualify for Medicaid-- the default payer of long term care services by a vast majority, and “re-balancing” efforts to direct money away from skilled nursing facilities (nursing homes) and towards more community and home/family based care giving. Neither of these efforts has made a significant impact yet. Again it boils down to the simple fact that people don’t pay attention to this issue until it hits home and then changes from being a theoretical problem for others, to a real problem for the individual.
Q: What will it take to get law makers to help stimulate private market solutions?
A: First and foremost LTC insurance will need to escalate the pace of modernizing to stay relevant with how the public wants to deal with care giving. The vast majority of people want to handle care at the community and in-home level. Policy makers would like to encourage this direction because it de-centralizes responsibility and instills in family care givers a personal stake to negotiate in the market for the best value and price of care. Lawmakers favor personal responsibility in health care reform as is evidenced by market innovations such as health savings accounts, and they are equally interested in seeing the long term care market go in this direction as well.
Insurance companies need to keep up with this rapid pace of evolution and must modernize product offerings if they are going to improve their chances at obtaining meaningful tax qualified status from law makers. As LTC policies continue to become multi-dimensional, more constituencies will have a stake in the game and the chances for political and market advancement will increase. The emergence of plans combining life insurance and long term care insurance is an example of market innovation, but the tax code is yet to catch up.
Insurers need to continue examining trends and better understand what the consumer wants. Products designed towards in-home care and supporting family care givers will be a bigger winner in the market and on Capitol Hill, than products geared towards nursing home care.
Q: Is there enough awareness about private market solutions and the burgeoning crisis?
A: There are some examples of effective public advocacy and awareness initiatives over the years. The LTC Clearinghouse has been doing good work for years. The “Own Your Future” campaign made some in-roads in the states where their focused communication effort was deployed. Another example is the broad based coalition, Americans for Long Term Care Security that I headed up out of Washington, DC for a number of years.
I also thought that the launch of the Federal Long Term Care Insurance program was very effective. They launched the plan for federal employees back around 2001 and it was a very well coordinated communication/education/marketing program that drove a lot of new subscribers. The challenge is being able to sustain that level of activity. A stop and start campaign is only effective for a short time and then you need to start all over again at a later date.
The recent New York Times article is a set back for public perception and acceptance of Long Term Care insurance as a viable solution. The industry still needs to overcome quality issues and a negative perception. It is also difficult to overcome the theoretical vs. reality problem with a life issue that seems far off in the future, and one most people don’t want to contemplate.
This reality also makes things difficult for the industry politically because law makers have a mixed opinion about Long Term Care insurance and the future crisis continues to be more theoretical than reality for them as well. This makes it a “second tier” issue compared to health insurance or covering children. There is still not enough confidence in the market or urgency about the future crisis to move tax incentives that would have a real impact on sales.
Conclusion
Mr. Blancato’s observations are common sense and ring true. The Long Term Care Insurance industry has been waiting a long time for the level of sales to match the urgency of the pending crisis. People (and lawmakers) by nature will only react to a crisis when it has entered their lives and becomes reality. How much less expensive and disastrous would it have been to spend money preparing New Orleans to handle a Hurricane Katrina instead of confronting the aftermath? It was known for years that it was just a matter of when and not if the big storm would hit—the only question was one of preparedness. The same is the case with the aging baby boomers and the impact they will have when that storm hits. It is just a matter of when, not if, and it will take the insurance industry, health care providers, individuals, and law makers all facing this reality and working towards a common goal of preparedness to avoid the potential devastation.
Copyright 2007 by the Society of Actuaries, Schaumburg, Illinois. Reprinted with permission.
Thursday, March 6, 2008
Life Settlements: Protecting the Golden Goose
published April, 2008 – Insurance News Net Magazine
Life Settlements: Protecting the Golden Goose
Introduction
Life Settlements are a healthy and efficient part of the insurance life cycle-- but the existence of the life insurance industry itself becomes threatened when then fundamental concept of “insurable interest” is ignored.
Evolution of a Market
The Life Settlement market is as an offshoot of Viaticals that emerged in the late 80’s and early 90’s. This unique vehicle afforded AIDS patients an opportunity for an early cash out of a life insurance policy to cover the high costs of care not covered by health insurance. The Life Settlement market has been evolving rapidly ever since, with $30 billion in transactions projected in 2007. Based on in-force life insurance policies in the United States held by individuals that fall within the target demographics for a Life Settlement transaction, the annual revenue potential is estimated at $150 billion.
The University of Pennsylvania’s business school, the Wharton School, conducted a study on the potential impact of the Life Settlement market. This study found, among other things, that life settlement providers paid approximately $340 million to consumers for their underperforming life insurance policies, an opportunity that was not available to them just a few years before. Another study conducted by Conning & Co., "Life Settlements: Additional Pressure on Life Profits, found that senior citizens owned approximately $500 billion worth of life insurance in 2003, of which $100 billion was owned by seniors eligible for life settlements.
With these kinds of numbers and market potential it is no surprise that Wall Street is now paying attention. In a Business Week article published in July of 2007, it was observed, “Wall Street sees huge profits in buying policies, throwing them into a pool, dividing the pool into bonds and selling the bonds to pension funds, college endowments, and other professional investors. If the market develops as Wall Street expects, ordinary mutual funds will soon be able to get in on the action, too.” But, with these kinds of numbers and market potential it should be no surprise that regulators and law makers are paying attention as well.
Life Settlement transactions emerged from a worthy concept. Although a dirty word now, Viaticals provided much needed liquidity during a time of crisis for people who did not have enough money to obtain care or improve quality of life in the face of a terminal condition. As is some times the case, what started out as a humane and economically sensible market development also opened the door for those that would seek to game the system for selfish interests. The problem the industry faces now is how to keep growing and providing an efficient outlet to liquidate life insurance policies, without allowing those that would take advantage of this opportunity to kill the Golden Goose.
Fundamental Property Rights
Life Settlement transactions bring efficiency to the life insurance marketplace. They offer a healthy, competitive outlet to liquidate a life insurance policy that has outlived its purpose and/or to raise cash in a time of immediate crisis. Transactions involving policies that were purchased based on insurable interest are the foundation of a legitimate transaction. In fact, this type of a transaction is supported by none other than Supreme Court Justice Oliver Wendell Holmes in his 1911 landmark decision, Grigbsy v. Russell. Justice Holmes noted in his final opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner could transfer without limitation.
This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
· Name the policy beneficiary
· Change the beneficiary designation (unless subject to restrictions)
· Assign the policy as collateral for a loan
· Borrow against the policy
· Sell the policy to another party
Justice Holmes makes a clear distinction between a policy based on insurable interest and one where none exists, “A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end. The very meaning of an insurable interest is an interest in having the life continue…” His decision clearly considers an insurance policy to be the same as real property and does not oppose transferring the property/policy to an entity without an interest in the life of the insured, and to this point he is very clear, ““…life insurance has become in our days one of the best recognized forms of investment and self-compelled saving. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property. To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner's hands”.
He does draw the distinction though between this and a policy initiated and funded by a third party without any insurable interest or “interest in having the life continue”. Here he states, “cases in which a person having an interest lends himself to one without any, as a cloak to what is, in its inception, a wager, have no similarity to those where an honest contract is sold in good faith.” Justice Holmes also emphasizes again the distinction towards the conclusion of his ruling as such, “…the policy having been taken out for the purpose of allowing a stranger association to pay the premiums and receive the greater part of the benefit, and having been assigned to it at once. On the other hand, it has been decided that a valid policy is not avoided by the cessation of the insurable interest, even as against the insurer, unless so provided by the policy itself.”
Threatening the Golden Goose
The right of a policy owner to transfer ownership interest is a guaranteed right under Constitutional law established by one of the greatest legal minds in our country’s history. But the difference he recognized between policies based on insurable interest and one where none exists is a problem that the Life Settlement industry must address. In the case of investor owned life insurance (IOLI) or stranger owned life insurance (STOLI) are we looking at what Justice Holmes defines as, “a pure wager”? If that is the case, then this practice may now be threatening not only the long term future of the Life Settlement marketplace but also the foundation of life insurance itself.
Life insurers are concerned about the explosive growth of the Life Settlement market for a couple of reasons. On the one hand, life insurers have a selfish concern about their bottom line when policies that no longer lapse or are converted for their cash value have a negative impact on their profitability. This is a healthy outcome of an efficient market that is providing outlets to maximize the value of ones interest in their constitutionally protected property. But insurers also have a bigger picture concern about law makers and regulatory bodies taking a closer look at the growing Life Settlement market, and if their practices are changing the very nature of life insurance.
The tax free exemption for inside build up of a life insurance policy is constantly under scrutiny by law makers. If it is ever concluded that life insurance has changed from its original function of providing a death benefit for beneficiaries to an investment vehicle for third parties to place “wagers” with no insurable interest in the insured-- then the tax free exemption could be revoked. If this were to happen, then life insurance would no longer be able to provide its key financial benefit and differentiator, and the industry as we know it would cease to exist. This is not good for anyone.
There will be Blood
The market is still evolving and it won’t take long for the insurance industry to wield its considerable clout with regulators and law makers to ensure practices that game the system will not kill the Golden Goose. Third party sponsored life insurance transactions initiated for the sole purpose of flipping them in the Life Settlement marketplace is not a practice that will last indefinitely. Conversely, in light of the Supreme Court’s ruling on the transferability of insurance as property, the ability for those holding a policy based on insurable interest that they no longer need will always be able to maximize the value of that property through a Life Settlement transaction. U.S. history has many examples of new economic outlets evolving to meet demands, and along the way, shaking out the questionable practices as it matures. There are also plenty of examples of federal and state law makers getting involved in that process as it is happening. Sometimes it is early in the game such as in the case of genetic sciences and cloning or late in the game such as in the case of sub-prime mortgages.
In both examples a market emerges and then based on the interests involved and the impact on the consumer and the economy, the government will step in to establish the rules. In the case of Life Settlements that process is already underway as is evidenced by the recent actions taken by both the NAIC and NCOIL, the North Dakota State Senate, and the Federal Court of Appeals for the Fourth Circuit. The life insurance industry and the government won’t sit idly on the sidelines. They will make sure that they have a say about how the Life Settlement industry conducts itself over the coming years.
The Life Settlement industry provides an important and efficient function to the insurance marketplace-- and it is a practice defended by the Supreme Court. But the distinctions around insurable interest are important to understand and this debate is only just beginning. Take a picture of this industry in 2008 and then take a look again in 2013—because within five years it is going to look very different.
Life Settlements: Protecting the Golden Goose
Introduction
Life Settlements are a healthy and efficient part of the insurance life cycle-- but the existence of the life insurance industry itself becomes threatened when then fundamental concept of “insurable interest” is ignored.
Evolution of a Market
The Life Settlement market is as an offshoot of Viaticals that emerged in the late 80’s and early 90’s. This unique vehicle afforded AIDS patients an opportunity for an early cash out of a life insurance policy to cover the high costs of care not covered by health insurance. The Life Settlement market has been evolving rapidly ever since, with $30 billion in transactions projected in 2007. Based on in-force life insurance policies in the United States held by individuals that fall within the target demographics for a Life Settlement transaction, the annual revenue potential is estimated at $150 billion.
The University of Pennsylvania’s business school, the Wharton School, conducted a study on the potential impact of the Life Settlement market. This study found, among other things, that life settlement providers paid approximately $340 million to consumers for their underperforming life insurance policies, an opportunity that was not available to them just a few years before. Another study conducted by Conning & Co., "Life Settlements: Additional Pressure on Life Profits, found that senior citizens owned approximately $500 billion worth of life insurance in 2003, of which $100 billion was owned by seniors eligible for life settlements.
With these kinds of numbers and market potential it is no surprise that Wall Street is now paying attention. In a Business Week article published in July of 2007, it was observed, “Wall Street sees huge profits in buying policies, throwing them into a pool, dividing the pool into bonds and selling the bonds to pension funds, college endowments, and other professional investors. If the market develops as Wall Street expects, ordinary mutual funds will soon be able to get in on the action, too.” But, with these kinds of numbers and market potential it should be no surprise that regulators and law makers are paying attention as well.
Life Settlement transactions emerged from a worthy concept. Although a dirty word now, Viaticals provided much needed liquidity during a time of crisis for people who did not have enough money to obtain care or improve quality of life in the face of a terminal condition. As is some times the case, what started out as a humane and economically sensible market development also opened the door for those that would seek to game the system for selfish interests. The problem the industry faces now is how to keep growing and providing an efficient outlet to liquidate life insurance policies, without allowing those that would take advantage of this opportunity to kill the Golden Goose.
Fundamental Property Rights
Life Settlement transactions bring efficiency to the life insurance marketplace. They offer a healthy, competitive outlet to liquidate a life insurance policy that has outlived its purpose and/or to raise cash in a time of immediate crisis. Transactions involving policies that were purchased based on insurable interest are the foundation of a legitimate transaction. In fact, this type of a transaction is supported by none other than Supreme Court Justice Oliver Wendell Holmes in his 1911 landmark decision, Grigbsy v. Russell. Justice Holmes noted in his final opinion that life insurance possessed all the ordinary characteristics of property, and therefore represented an asset that a policy owner could transfer without limitation.
This decision established a life insurance policy as transferable property that contains specific legal rights, including the right to:
· Name the policy beneficiary
· Change the beneficiary designation (unless subject to restrictions)
· Assign the policy as collateral for a loan
· Borrow against the policy
· Sell the policy to another party
Justice Holmes makes a clear distinction between a policy based on insurable interest and one where none exists, “A contract of insurance upon a life in which the insured has no interest is a pure wager that gives the insured a sinister counter interest in having the life come to an end. The very meaning of an insurable interest is an interest in having the life continue…” His decision clearly considers an insurance policy to be the same as real property and does not oppose transferring the property/policy to an entity without an interest in the life of the insured, and to this point he is very clear, ““…life insurance has become in our days one of the best recognized forms of investment and self-compelled saving. So far as reasonable safety permits, it is desirable to give to life policies the ordinary characteristics of property. To deny the right to sell except to persons having such an interest is to diminish appreciably the value of the contract in the owner's hands”.
He does draw the distinction though between this and a policy initiated and funded by a third party without any insurable interest or “interest in having the life continue”. Here he states, “cases in which a person having an interest lends himself to one without any, as a cloak to what is, in its inception, a wager, have no similarity to those where an honest contract is sold in good faith.” Justice Holmes also emphasizes again the distinction towards the conclusion of his ruling as such, “…the policy having been taken out for the purpose of allowing a stranger association to pay the premiums and receive the greater part of the benefit, and having been assigned to it at once. On the other hand, it has been decided that a valid policy is not avoided by the cessation of the insurable interest, even as against the insurer, unless so provided by the policy itself.”
Threatening the Golden Goose
The right of a policy owner to transfer ownership interest is a guaranteed right under Constitutional law established by one of the greatest legal minds in our country’s history. But the difference he recognized between policies based on insurable interest and one where none exists is a problem that the Life Settlement industry must address. In the case of investor owned life insurance (IOLI) or stranger owned life insurance (STOLI) are we looking at what Justice Holmes defines as, “a pure wager”? If that is the case, then this practice may now be threatening not only the long term future of the Life Settlement marketplace but also the foundation of life insurance itself.
Life insurers are concerned about the explosive growth of the Life Settlement market for a couple of reasons. On the one hand, life insurers have a selfish concern about their bottom line when policies that no longer lapse or are converted for their cash value have a negative impact on their profitability. This is a healthy outcome of an efficient market that is providing outlets to maximize the value of ones interest in their constitutionally protected property. But insurers also have a bigger picture concern about law makers and regulatory bodies taking a closer look at the growing Life Settlement market, and if their practices are changing the very nature of life insurance.
The tax free exemption for inside build up of a life insurance policy is constantly under scrutiny by law makers. If it is ever concluded that life insurance has changed from its original function of providing a death benefit for beneficiaries to an investment vehicle for third parties to place “wagers” with no insurable interest in the insured-- then the tax free exemption could be revoked. If this were to happen, then life insurance would no longer be able to provide its key financial benefit and differentiator, and the industry as we know it would cease to exist. This is not good for anyone.
There will be Blood
The market is still evolving and it won’t take long for the insurance industry to wield its considerable clout with regulators and law makers to ensure practices that game the system will not kill the Golden Goose. Third party sponsored life insurance transactions initiated for the sole purpose of flipping them in the Life Settlement marketplace is not a practice that will last indefinitely. Conversely, in light of the Supreme Court’s ruling on the transferability of insurance as property, the ability for those holding a policy based on insurable interest that they no longer need will always be able to maximize the value of that property through a Life Settlement transaction. U.S. history has many examples of new economic outlets evolving to meet demands, and along the way, shaking out the questionable practices as it matures. There are also plenty of examples of federal and state law makers getting involved in that process as it is happening. Sometimes it is early in the game such as in the case of genetic sciences and cloning or late in the game such as in the case of sub-prime mortgages.
In both examples a market emerges and then based on the interests involved and the impact on the consumer and the economy, the government will step in to establish the rules. In the case of Life Settlements that process is already underway as is evidenced by the recent actions taken by both the NAIC and NCOIL, the North Dakota State Senate, and the Federal Court of Appeals for the Fourth Circuit. The life insurance industry and the government won’t sit idly on the sidelines. They will make sure that they have a say about how the Life Settlement industry conducts itself over the coming years.
The Life Settlement industry provides an important and efficient function to the insurance marketplace-- and it is a practice defended by the Supreme Court. But the distinctions around insurable interest are important to understand and this debate is only just beginning. Take a picture of this industry in 2008 and then take a look again in 2013—because within five years it is going to look very different.
Underwriting in the 21st Century: Informals—Turning a Pain into Profits
published June, 2008—On the Risk
Underwriting in the 21st Century: Informals—Turning a Pain into Profits
Executive Summary
This article series continues to explore the evolving landscape of underwriting in the 21st Century. In this installment we explore the impact of informal, or preliminary, applications on both the workflow of an underwriting department and on relationships with producers. We spoke with four leading carriers in this market about innovations they have implemented to improve these dynamics, and we also spoke with a reinsurer to gain additional perspective on this marketplace.
We found agreement that informals, if not handled correctly, can significantly bog down an underwriting operation. The solution offered by these companies is to find ways to create a sense of partnership with the producers and a shared interest for both sides to improve the process. Reducing cycle time and the burden on underwriting departments is the key to improving the process-- and increasing profitability.
What are the problems with informals?
Ask any underwriter who reviews informals on a regular basis this question and you will hear a laundry list of complaints from carriers both large and small. Informals were described as a “necessary evil” and an enormous drain on a company’s underwriting resources. Applicants are more advanced in age and have voluminous medical histories. APS’s accompanying a preliminary application can number in the several hundreds of pages (even over 1,000!) and the quality of the records are often times marginal at best. “Three problems we found with informal submissions all came together to tie up underwriting resources and delay cycle time”, explains Pam Anson, ING’s Underwriting Chief Administrative Officer and Head of Corporate Markets Operations, “volume of pages, complexity of case history and the knowledge that certain producers would use ING to shop but not place cases with us were all negatives that needed to be addressed.”
The need to underwrite cases requiring a disproportionate amount of resources relative to the percentage that are actually placed is a key dynamic cited. These cases are complex and the pressure to issue competitive and timely offers can become difficult for underwriters. With as much as half of a carrier’s underwriting capacity potentially tied up with informals -- and the placement rate hovering between 2%-3%-- handling a large volume of informals can become a morale issue for an underwriting department leaving underwriters asking the question: “why do we bother?”
"These cases are large, complicated and require very experienced senior level underwriters to work on them.” M. Cristina Downey VP, Chief Underwriter of XL Re Life America describes the impact on underwriting departments, “At a time when many companies are struggling to secure and retain sufficient resources; competitive pressure and time constraints need to be carefully balance against placement ratios and the cost of lost business".
“As a reinsurer we do not encourage informals and we only see them when the direct
writer is getting a formal app and wants to start the underwriting process. If we receive
inquiries regarding capacity of potentially large coverage, we do not formally reserve
until a formal application is received. Similarly, retros will not reserve capacity if the
reinsurer submits only an informal. As a reinsurer in a large facultative shop years ago,
we reviewed many inquiries and at times the same one simultaneously from multiple
carriers.” XL’s Downey cautions, “The placement ratio is virtually negligible, they are
often extremely time consuming and voluminous and result in either high substandard
ratings or declinations due to medical impairments or questionable financials, high
substandard medical histories, or suspect insurable interest. In today's environment, I would guess stranger-owned and premium financing are emerging patterns as well.”
How are carriers moving from pain to profit?
With the negatives associated with informals, what kinds of innovations are occurring in the industry to make this a more manageable and profitable business model?
“ We identified key areas that contributed to ING's inability to effectively manage and provide timely service on informal submissions." explains Pam Anson, ING’s Underwriting Chief Administrative Officer, “ Quantity and quality of submissions were impeding our ability to provide timely offers resulting in very low formalization and placement of this business. To be successful and improve the placement rate, we needed to identify solutions.”
In the case of ING, they engaged a well thought out Six Sigma process to identify what their biggest challenges were to becoming more proficient and profitable in the informals’ market. ING’s numbers showed them that 33% of their underwriting resources were being spent on informals and it was generating less than 5% placement. They identified interconnected factors that were contributing to this low return on investment: timeliness of offers, quality and quantity of submissions, and the lack of customer partnership in researching product offerings and pricing to determine the viability of placing cases with ING as their first option. To overcome these challenges, ING encouraged the customer to become a participant in the process and began working with various distribution channels to fine tune their offers and reduce cycle time so ING could be first to make offers—instead of last.
The key for ING to reduce cycle time was first engaging the producer to participate in the solution by investing their own resources. “We specifically did not want to refuse informal service support to any of our customers; however, we knew that our new informal process would naturally discourage submissions from customers that were not willing to invest their resources in improving the quality and quantity of the informals submitted,” explained Ms. Anson. ING went to work building partnerships with productive producers by offering them incentives to participate in the process of reducing cycle time.
ING offered producers the ability to contract with vendors that could summarize APS’s in advance of submitting the informal application and then would pay out a bonus on every case that was submitted in this manner and then placed. Producers submit APS’s to vendors at negotiated rates to be summarized and then they are delivered to ING. Without taking on any additional internal staff or overhead, ING reduced the time it took for home office underwriters to review a submission on average 30 minutes and this in turn drastically reduced cycle time from the previous 30-60 days to their 5 day target.
“This paradigm shift in how ING handles informals put us in the position that we became value added partners to the producers and remain forefront in their minds.” Said Ms. Anson, “By creating incentives for the producers to stop submitting voluminous medical records and instead work with us to summarize those records and create a concise health overview of the applicant, we all benefited and achieved our goal of moving from the last offer to the first and our placement rates moved to the 7% range and profitability immediately improved.”
From Cristina Downey of XL Re’s perspective, there are some guidelines that a carrier should use when evaluating the informals market and producer relations, “Carriers should focus on producers that have a track record of high placement with them. Submissions should carry a considerable face amount of yearly premium and the applicant should be fresh in the market and carry MIB authorization. Producers expectations need to be managed and they should be ready to accept that time service might not be a priority for these cases and that they won’t be reimbursed for expenses if they order requirements without specific consent from underwriting.”
Do improvements handling producer relations lead to improvements handling informals (and vice versa)?
When American National Insurance Company (ANICO) started accepting informal submissions from brokers their goal as a new entrant into the brokerage life arena was to compete not only on price, but by also building value-added relationships with producers and delivering expedited cycle time to get to offer.
They began by requiring that all informals be submitted with summarized APS’s with a total limit of 10 pages for all submissions. According to Jeff Moore, a National Sales Manager with ANICO, “We have seen a significant improvement in cycle time by cutting down on the pages to review and our producer relationships also benefit from our assistance in “pre-underwriting” these cases. Once we introduced outsourced APS summaries to the process, our internal capability to underwrite informals and make offers increased by more than double. For a new player in a highly competitive market, that is a big deal! By using an outside firm to do APS summaries we were able to significantly increase our underwriting capacity without detracting from our capacity to handle formal applications.”
This process has resulted in ANICO’s cycle time decreasing from 3-4 weeks to 2-4 days. They have also built up goodwill and trust with producers who view the summaries as very insightful and valuable as it bolsters their capabilities as well.
Downey of XL Re also sees opportunities to work in a positive fashion with producers,
“A good producer will not just send junk and if there is a very good producer that
occasionally may need help on an inquiry they should be accommodated. A large
profitable agency that expects support on a regular basis from the direct writer should be
given a quick reference set of criteria, for example: alcohol/drug abuse treatment in the
last 6 months or no cases already assessed Table 8 or higher by another carrier.”
Conclusion
The consensus among those we spoke with is that carriers need to work with producers to improve the quality of submissions and reduce cycle times so that informals can be a sustainable business model for both sides. Carriers need to lead the way by clearly establishing guidelines and expectations with the producers to help eliminate decline submissions. Carriers also need to implement incentive programs to cut down on the volume of paper through innovations like APS summaries. To ensure goals are being met, carriers need to have reliable metrics in place to run cost-benefit analysis to determine where the profitable relationships are, and who is costing the company money—and then focus efforts where it counts.
Informals are a double edged sword. If they are not managed with innovation and a sense of partnership between producer and carrier they can become counter productive to any carrier regardless of size. But, handled correctly they can actually help improve producer relations and can be a healthy contributor to the bottom line. As the saying goes, “you get out of something what you put into it.” In the case of informals, the companies that are putting in the extra effort to work smarter, instead of harder, are getting a lot in return.
Underwriting in the 21st Century: Informals—Turning a Pain into Profits
Executive Summary
This article series continues to explore the evolving landscape of underwriting in the 21st Century. In this installment we explore the impact of informal, or preliminary, applications on both the workflow of an underwriting department and on relationships with producers. We spoke with four leading carriers in this market about innovations they have implemented to improve these dynamics, and we also spoke with a reinsurer to gain additional perspective on this marketplace.
We found agreement that informals, if not handled correctly, can significantly bog down an underwriting operation. The solution offered by these companies is to find ways to create a sense of partnership with the producers and a shared interest for both sides to improve the process. Reducing cycle time and the burden on underwriting departments is the key to improving the process-- and increasing profitability.
What are the problems with informals?
Ask any underwriter who reviews informals on a regular basis this question and you will hear a laundry list of complaints from carriers both large and small. Informals were described as a “necessary evil” and an enormous drain on a company’s underwriting resources. Applicants are more advanced in age and have voluminous medical histories. APS’s accompanying a preliminary application can number in the several hundreds of pages (even over 1,000!) and the quality of the records are often times marginal at best. “Three problems we found with informal submissions all came together to tie up underwriting resources and delay cycle time”, explains Pam Anson, ING’s Underwriting Chief Administrative Officer and Head of Corporate Markets Operations, “volume of pages, complexity of case history and the knowledge that certain producers would use ING to shop but not place cases with us were all negatives that needed to be addressed.”
The need to underwrite cases requiring a disproportionate amount of resources relative to the percentage that are actually placed is a key dynamic cited. These cases are complex and the pressure to issue competitive and timely offers can become difficult for underwriters. With as much as half of a carrier’s underwriting capacity potentially tied up with informals -- and the placement rate hovering between 2%-3%-- handling a large volume of informals can become a morale issue for an underwriting department leaving underwriters asking the question: “why do we bother?”
"These cases are large, complicated and require very experienced senior level underwriters to work on them.” M. Cristina Downey VP, Chief Underwriter of XL Re Life America describes the impact on underwriting departments, “At a time when many companies are struggling to secure and retain sufficient resources; competitive pressure and time constraints need to be carefully balance against placement ratios and the cost of lost business".
“As a reinsurer we do not encourage informals and we only see them when the direct
writer is getting a formal app and wants to start the underwriting process. If we receive
inquiries regarding capacity of potentially large coverage, we do not formally reserve
until a formal application is received. Similarly, retros will not reserve capacity if the
reinsurer submits only an informal. As a reinsurer in a large facultative shop years ago,
we reviewed many inquiries and at times the same one simultaneously from multiple
carriers.” XL’s Downey cautions, “The placement ratio is virtually negligible, they are
often extremely time consuming and voluminous and result in either high substandard
ratings or declinations due to medical impairments or questionable financials, high
substandard medical histories, or suspect insurable interest. In today's environment, I would guess stranger-owned and premium financing are emerging patterns as well.”
How are carriers moving from pain to profit?
With the negatives associated with informals, what kinds of innovations are occurring in the industry to make this a more manageable and profitable business model?
“ We identified key areas that contributed to ING's inability to effectively manage and provide timely service on informal submissions." explains Pam Anson, ING’s Underwriting Chief Administrative Officer, “ Quantity and quality of submissions were impeding our ability to provide timely offers resulting in very low formalization and placement of this business. To be successful and improve the placement rate, we needed to identify solutions.”
In the case of ING, they engaged a well thought out Six Sigma process to identify what their biggest challenges were to becoming more proficient and profitable in the informals’ market. ING’s numbers showed them that 33% of their underwriting resources were being spent on informals and it was generating less than 5% placement. They identified interconnected factors that were contributing to this low return on investment: timeliness of offers, quality and quantity of submissions, and the lack of customer partnership in researching product offerings and pricing to determine the viability of placing cases with ING as their first option. To overcome these challenges, ING encouraged the customer to become a participant in the process and began working with various distribution channels to fine tune their offers and reduce cycle time so ING could be first to make offers—instead of last.
The key for ING to reduce cycle time was first engaging the producer to participate in the solution by investing their own resources. “We specifically did not want to refuse informal service support to any of our customers; however, we knew that our new informal process would naturally discourage submissions from customers that were not willing to invest their resources in improving the quality and quantity of the informals submitted,” explained Ms. Anson. ING went to work building partnerships with productive producers by offering them incentives to participate in the process of reducing cycle time.
ING offered producers the ability to contract with vendors that could summarize APS’s in advance of submitting the informal application and then would pay out a bonus on every case that was submitted in this manner and then placed. Producers submit APS’s to vendors at negotiated rates to be summarized and then they are delivered to ING. Without taking on any additional internal staff or overhead, ING reduced the time it took for home office underwriters to review a submission on average 30 minutes and this in turn drastically reduced cycle time from the previous 30-60 days to their 5 day target.
“This paradigm shift in how ING handles informals put us in the position that we became value added partners to the producers and remain forefront in their minds.” Said Ms. Anson, “By creating incentives for the producers to stop submitting voluminous medical records and instead work with us to summarize those records and create a concise health overview of the applicant, we all benefited and achieved our goal of moving from the last offer to the first and our placement rates moved to the 7% range and profitability immediately improved.”
From Cristina Downey of XL Re’s perspective, there are some guidelines that a carrier should use when evaluating the informals market and producer relations, “Carriers should focus on producers that have a track record of high placement with them. Submissions should carry a considerable face amount of yearly premium and the applicant should be fresh in the market and carry MIB authorization. Producers expectations need to be managed and they should be ready to accept that time service might not be a priority for these cases and that they won’t be reimbursed for expenses if they order requirements without specific consent from underwriting.”
Do improvements handling producer relations lead to improvements handling informals (and vice versa)?
When American National Insurance Company (ANICO) started accepting informal submissions from brokers their goal as a new entrant into the brokerage life arena was to compete not only on price, but by also building value-added relationships with producers and delivering expedited cycle time to get to offer.
They began by requiring that all informals be submitted with summarized APS’s with a total limit of 10 pages for all submissions. According to Jeff Moore, a National Sales Manager with ANICO, “We have seen a significant improvement in cycle time by cutting down on the pages to review and our producer relationships also benefit from our assistance in “pre-underwriting” these cases. Once we introduced outsourced APS summaries to the process, our internal capability to underwrite informals and make offers increased by more than double. For a new player in a highly competitive market, that is a big deal! By using an outside firm to do APS summaries we were able to significantly increase our underwriting capacity without detracting from our capacity to handle formal applications.”
This process has resulted in ANICO’s cycle time decreasing from 3-4 weeks to 2-4 days. They have also built up goodwill and trust with producers who view the summaries as very insightful and valuable as it bolsters their capabilities as well.
Downey of XL Re also sees opportunities to work in a positive fashion with producers,
“A good producer will not just send junk and if there is a very good producer that
occasionally may need help on an inquiry they should be accommodated. A large
profitable agency that expects support on a regular basis from the direct writer should be
given a quick reference set of criteria, for example: alcohol/drug abuse treatment in the
last 6 months or no cases already assessed Table 8 or higher by another carrier.”
Conclusion
The consensus among those we spoke with is that carriers need to work with producers to improve the quality of submissions and reduce cycle times so that informals can be a sustainable business model for both sides. Carriers need to lead the way by clearly establishing guidelines and expectations with the producers to help eliminate decline submissions. Carriers also need to implement incentive programs to cut down on the volume of paper through innovations like APS summaries. To ensure goals are being met, carriers need to have reliable metrics in place to run cost-benefit analysis to determine where the profitable relationships are, and who is costing the company money—and then focus efforts where it counts.
Informals are a double edged sword. If they are not managed with innovation and a sense of partnership between producer and carrier they can become counter productive to any carrier regardless of size. But, handled correctly they can actually help improve producer relations and can be a healthy contributor to the bottom line. As the saying goes, “you get out of something what you put into it.” In the case of informals, the companies that are putting in the extra effort to work smarter, instead of harder, are getting a lot in return.
Overcoming the Underwriting Crunch Through Outsourcing
published January, 2007 – InsuranceNewsNet and InsureIntell, February, 2007
Overcoming the Underwriting Crunch Through Outsourcing
Introduction
Underwriting at any level is a very specific science; it is also a discipline that can be easily underestimated in both its complexity and bottom-line impact for an insurance company. But what happens to a company’s risk experience if there is a lack of qualified talent due to attrition or workflow overload?
As the Life and Health insurance industry of the 21st Century continues to evolve; the cost savings and improved workflow derived from outsourcing can not be ignored. In less than a decade, a heightened sense of urgency has emerged compelling companies to better understand and have a plan in place for outsourcing some, if not all, risk management functions. This urgency is clearly attributable to the following factors:
1. Resource Drain: Staying ramped up at maximum staffing levels year round is an expensive and wasteful proposition; conversely, it is also expensive and distracting to hire and train temporary staff in a reactionary attempt to handle intermittent peak-volume periods.
2. Brain Drain: One of the last generations of underwriters to receive company specific training and experience over years is reaching retirement age en-masse. Unlike years past, fewer companies are investing in long-term training and career development programs. This reality is making it increasingly difficult to stem the tide of attrition across the ranks of employees that posses much in the way of a company’s institutional risk management knowledge.
Fortunately, there are numerous options available today for outsourcing underwriting functions that can help to overcome these staffing problems while improving operational efficiencies, costs and time service.
When is it time to outsource?
How does a company determine if they will benefit from outsourcing? Start by identify where bottlenecks exist (too much paper, not enough staff, backlogged APS’s, delayed administrative work, etc.) and then consider how augmenting staff through outsourcing can help get the process moving again. A critical internal check is to make sure that trained and experienced underwriting professionals are not being diverted from the risk assessment and decision making process. In the midst of a crunch, underwriters and other specialized/highly paid personnel should not be haphazardly covering personnel gaps or performing administrative tasks - such as chasing down missing application information or glorified data sorting/entry - that could be more cost effectively outsourced.
Smart and strategic outsourcing is not about replacing people with cheaper options-- it is about empowering staff to focus on doing what they do best. The bottom line is that insurance companies should NEVER abdicate their responsibility to manage risk. But, insurers should ALWAYS look at how they can do a better job of managing risk while maximizing all available resources—be they internal or external.
Selecting the best outsource resource
Companies seeking to outsource elements of their risk management functions should look to build a long-term relationship with a company that is staffed by actual underwriters and has a proven track record in providing outsourced services. Look for a company that has the experience and capacity to meet your needs and can be fully compliant with your risk management guidelines. Some companies specialize in one type of support service (i.e. tele-underwriting only) and others offer full service support packages (i.e. requirements retrieval and underwriting services)--based on the needs of a given company either option can be attractive. So how does a company decide which option is best for them?
The first question to ask is: can the outsourced underwriting company create customized solutions that take into account factors such as specific guidelines, appropriate skill sets and product specialties? Another important factor to measure is the scalable capacity of the operation and its ability to expand and contract service levels in concert with the volume cycles of your company.
Which risk management functions to outsource?
1. Requirements
Obtaining exams and retrieving medical records are labor intensive functions that emphasize scale (people and systems) and scope (geographic reach). This is a commoditized area of service, with a hand full of national vendors available that can adequately provide the necessary scale and scope to deliver requirements in a cost effective, but also, time effective manner. Time and cost tend to be the measuring sticks for success in this area.
2. Pre-Underwriting
Underwriting can be compartmentalized and broken into steps very much like an assembly line. Efficient management of the process can impact both risk experience and bottom line before underwriting even begins. In pre-underwriting there are a number of options to select from such as outsourcing data entry, application review and screening, telephone or web based data info gathering, or personal health interviews. Companies that administer a “risk triage” approach to screen an applicant or claim before making the larger investment of requirement gathering and full underwriting are in a position to speed up cycle time, decrease costs, and improve risk experience.
3. Remote Underwriting
There are a number of options to offset attrition in the ranks of an underwriting department and/or help break through backlogs of applications. Quick Quotes, Tele-Underwriting, APS Summaries, Automated (Rules Based) Underwriting, and use of Remote Underwriters are now commonly outsourced functions that are all designed to provide the home office underwriter with better information, and less administrative burden, to keep the underwriting process moving.
4. Claims Risk Management
Evidence of insurability information can be formatted to expedite decision making by claims examiners. For example, an APS summary will eliminate duplicate records, as well as highlight observations regarding potential preexisting conditions, symptoms or concerns previously expressed by the insured. Speed decisions can be assisted by highlighting cases where no concerns exist or those where claims can be denied.
5. Communications
The common thread throughout customer acquisition, underwriting/risk management, and back-office support is effective communication. Whether the communication medium is tele-phonic, digital, or print-- there exist many options for accessing expertise and resources on an as needed, outsourced basis. In-house tele-service, print and internet operations can be a costly and distracting enterprise for an insurance company. These are unique functions that require specialized equipment, operating systems, staff, quality controls, training, and management protocols. Outsourcing these functions is a cost effective alternative to trying to build and manage in-house operations, with the added benefit of the outsourced approach providing maximum flexibility to ramp up and down based on need.
6. Back-Office
To survive in today’s competitive environment, insurance companies must identify where administrative bottlenecks are slowing down the foreword progress of an application or claim. The insurance industry still suffers from paper jams, workflow atrophy, and administrative overload caused by backlogged requirements orders and APS’s, neglected applications of all varieties (short, long, trial), and claims discrepancies. There are a number of domestic and off-shore outsourcing options that will provide focused expertise, lower costs and the ability to perform these functions off-hours to keep an operation moving 24-7.
What are some examples of success?
Companies able to identify opportunities for outsourcing risk management functions hindering productivity will be steps ahead of the competition. This approach is a cost effective way to handle volume cycles and manage the impact of staffing/systems challenges. Your goal should be to speed up the new business cycle with an assembly line or triage approach to risk management. Companies need to take a hard look at their volume cycles and staff/budget levels. If volume exceeds capacity to turn around applications in a timely manner, then outsourcing should be seriously considered.
Obviously, the resources are out there and the expertise exists. A conversation about outsourcing risk management functions 5 or more years ago would probably have been met with blank stares. But, today there are enough proven models across the industry that no company need go in this direction alone.
Some specific examples currently in practice include:
· Companies are speeding up new business cycle times and improving broker relations by efficiently sifting through applications generated through the BGA channel by using remote underwriters to provide Quick Quotes via electronic submission of application summaries.
· Companies are speeding up application cycle times by cutting down the amount of time it takes to retrieve requirements such as an APS. Companies once happy with receiving an APS anywhere from 15-30 business days after placing their order, are now benefiting from retrieval times cut down to 10 calendar days-- or less.
· Companies are clearing backlogs of applications and stacks of Attending Physician Statements (APS) by outsourcing the administrative burden of sorting and summarizing voluminous medical records.
· Companies are overcoming delays and costs associated with acquiring new business through Tele-Underwriting programs. These companies are experiencing reduced costs for acquiring new business (including reducing APS orders), increased quantity and quality of information acquired for application completion and underwriting, faster more accurate application approval or declinations, improved customer service, and acknowledged improvements in overall process for the producer, the carrier, and the customer.
· Companies are overcoming the communication divide between distribution and underwriting by teaming these functions. One company is experiencing great success by referring sales from financial advisors directly through a “rules-based” application completion and tele-underwriting process. Speed of issue, policy placement, customer experience, and persistency have all increased dramatically once sales and underwriting started working together as a team.
· Companies are overcoming the “paper problem” with imaging technology and/or sending data entry and interpretation to domestic or offshore locations where the process can be done for a fraction of the cost and during off-hours. These companies are experiencing a workflow process that is operating at almost 24 hours a day with access to electronic files now constantly at their fingertips.
Conclusion
Today’s insurance company must negotiate a very difficult balancing act. There is immense internal pressure to be cost-effective and risk astute, competing with external pressure for expediency and improved customer service. Compounding this challenge is the simple fact that underwriting departments are being asked to do more, quicker-- but with less staff. Companies tired of being understaffed during busy periods, and overstaffed during slow periods, are looking to overcome this constant juggling act by acquiring additional resources through outsourcing.
The bottom line is clear-- those companies quickest to embrace and master outsourcing will be establishing a clear competitive advantage over companies that chose to ignore this highly cost-effective way to augment staffing levels and maximize workflow on an “as needed basis”.
Overcoming the Underwriting Crunch Through Outsourcing
Introduction
Underwriting at any level is a very specific science; it is also a discipline that can be easily underestimated in both its complexity and bottom-line impact for an insurance company. But what happens to a company’s risk experience if there is a lack of qualified talent due to attrition or workflow overload?
As the Life and Health insurance industry of the 21st Century continues to evolve; the cost savings and improved workflow derived from outsourcing can not be ignored. In less than a decade, a heightened sense of urgency has emerged compelling companies to better understand and have a plan in place for outsourcing some, if not all, risk management functions. This urgency is clearly attributable to the following factors:
1. Resource Drain: Staying ramped up at maximum staffing levels year round is an expensive and wasteful proposition; conversely, it is also expensive and distracting to hire and train temporary staff in a reactionary attempt to handle intermittent peak-volume periods.
2. Brain Drain: One of the last generations of underwriters to receive company specific training and experience over years is reaching retirement age en-masse. Unlike years past, fewer companies are investing in long-term training and career development programs. This reality is making it increasingly difficult to stem the tide of attrition across the ranks of employees that posses much in the way of a company’s institutional risk management knowledge.
Fortunately, there are numerous options available today for outsourcing underwriting functions that can help to overcome these staffing problems while improving operational efficiencies, costs and time service.
When is it time to outsource?
How does a company determine if they will benefit from outsourcing? Start by identify where bottlenecks exist (too much paper, not enough staff, backlogged APS’s, delayed administrative work, etc.) and then consider how augmenting staff through outsourcing can help get the process moving again. A critical internal check is to make sure that trained and experienced underwriting professionals are not being diverted from the risk assessment and decision making process. In the midst of a crunch, underwriters and other specialized/highly paid personnel should not be haphazardly covering personnel gaps or performing administrative tasks - such as chasing down missing application information or glorified data sorting/entry - that could be more cost effectively outsourced.
Smart and strategic outsourcing is not about replacing people with cheaper options-- it is about empowering staff to focus on doing what they do best. The bottom line is that insurance companies should NEVER abdicate their responsibility to manage risk. But, insurers should ALWAYS look at how they can do a better job of managing risk while maximizing all available resources—be they internal or external.
Selecting the best outsource resource
Companies seeking to outsource elements of their risk management functions should look to build a long-term relationship with a company that is staffed by actual underwriters and has a proven track record in providing outsourced services. Look for a company that has the experience and capacity to meet your needs and can be fully compliant with your risk management guidelines. Some companies specialize in one type of support service (i.e. tele-underwriting only) and others offer full service support packages (i.e. requirements retrieval and underwriting services)--based on the needs of a given company either option can be attractive. So how does a company decide which option is best for them?
The first question to ask is: can the outsourced underwriting company create customized solutions that take into account factors such as specific guidelines, appropriate skill sets and product specialties? Another important factor to measure is the scalable capacity of the operation and its ability to expand and contract service levels in concert with the volume cycles of your company.
Which risk management functions to outsource?
1. Requirements
Obtaining exams and retrieving medical records are labor intensive functions that emphasize scale (people and systems) and scope (geographic reach). This is a commoditized area of service, with a hand full of national vendors available that can adequately provide the necessary scale and scope to deliver requirements in a cost effective, but also, time effective manner. Time and cost tend to be the measuring sticks for success in this area.
2. Pre-Underwriting
Underwriting can be compartmentalized and broken into steps very much like an assembly line. Efficient management of the process can impact both risk experience and bottom line before underwriting even begins. In pre-underwriting there are a number of options to select from such as outsourcing data entry, application review and screening, telephone or web based data info gathering, or personal health interviews. Companies that administer a “risk triage” approach to screen an applicant or claim before making the larger investment of requirement gathering and full underwriting are in a position to speed up cycle time, decrease costs, and improve risk experience.
3. Remote Underwriting
There are a number of options to offset attrition in the ranks of an underwriting department and/or help break through backlogs of applications. Quick Quotes, Tele-Underwriting, APS Summaries, Automated (Rules Based) Underwriting, and use of Remote Underwriters are now commonly outsourced functions that are all designed to provide the home office underwriter with better information, and less administrative burden, to keep the underwriting process moving.
4. Claims Risk Management
Evidence of insurability information can be formatted to expedite decision making by claims examiners. For example, an APS summary will eliminate duplicate records, as well as highlight observations regarding potential preexisting conditions, symptoms or concerns previously expressed by the insured. Speed decisions can be assisted by highlighting cases where no concerns exist or those where claims can be denied.
5. Communications
The common thread throughout customer acquisition, underwriting/risk management, and back-office support is effective communication. Whether the communication medium is tele-phonic, digital, or print-- there exist many options for accessing expertise and resources on an as needed, outsourced basis. In-house tele-service, print and internet operations can be a costly and distracting enterprise for an insurance company. These are unique functions that require specialized equipment, operating systems, staff, quality controls, training, and management protocols. Outsourcing these functions is a cost effective alternative to trying to build and manage in-house operations, with the added benefit of the outsourced approach providing maximum flexibility to ramp up and down based on need.
6. Back-Office
To survive in today’s competitive environment, insurance companies must identify where administrative bottlenecks are slowing down the foreword progress of an application or claim. The insurance industry still suffers from paper jams, workflow atrophy, and administrative overload caused by backlogged requirements orders and APS’s, neglected applications of all varieties (short, long, trial), and claims discrepancies. There are a number of domestic and off-shore outsourcing options that will provide focused expertise, lower costs and the ability to perform these functions off-hours to keep an operation moving 24-7.
What are some examples of success?
Companies able to identify opportunities for outsourcing risk management functions hindering productivity will be steps ahead of the competition. This approach is a cost effective way to handle volume cycles and manage the impact of staffing/systems challenges. Your goal should be to speed up the new business cycle with an assembly line or triage approach to risk management. Companies need to take a hard look at their volume cycles and staff/budget levels. If volume exceeds capacity to turn around applications in a timely manner, then outsourcing should be seriously considered.
Obviously, the resources are out there and the expertise exists. A conversation about outsourcing risk management functions 5 or more years ago would probably have been met with blank stares. But, today there are enough proven models across the industry that no company need go in this direction alone.
Some specific examples currently in practice include:
· Companies are speeding up new business cycle times and improving broker relations by efficiently sifting through applications generated through the BGA channel by using remote underwriters to provide Quick Quotes via electronic submission of application summaries.
· Companies are speeding up application cycle times by cutting down the amount of time it takes to retrieve requirements such as an APS. Companies once happy with receiving an APS anywhere from 15-30 business days after placing their order, are now benefiting from retrieval times cut down to 10 calendar days-- or less.
· Companies are clearing backlogs of applications and stacks of Attending Physician Statements (APS) by outsourcing the administrative burden of sorting and summarizing voluminous medical records.
· Companies are overcoming delays and costs associated with acquiring new business through Tele-Underwriting programs. These companies are experiencing reduced costs for acquiring new business (including reducing APS orders), increased quantity and quality of information acquired for application completion and underwriting, faster more accurate application approval or declinations, improved customer service, and acknowledged improvements in overall process for the producer, the carrier, and the customer.
· Companies are overcoming the communication divide between distribution and underwriting by teaming these functions. One company is experiencing great success by referring sales from financial advisors directly through a “rules-based” application completion and tele-underwriting process. Speed of issue, policy placement, customer experience, and persistency have all increased dramatically once sales and underwriting started working together as a team.
· Companies are overcoming the “paper problem” with imaging technology and/or sending data entry and interpretation to domestic or offshore locations where the process can be done for a fraction of the cost and during off-hours. These companies are experiencing a workflow process that is operating at almost 24 hours a day with access to electronic files now constantly at their fingertips.
Conclusion
Today’s insurance company must negotiate a very difficult balancing act. There is immense internal pressure to be cost-effective and risk astute, competing with external pressure for expediency and improved customer service. Compounding this challenge is the simple fact that underwriting departments are being asked to do more, quicker-- but with less staff. Companies tired of being understaffed during busy periods, and overstaffed during slow periods, are looking to overcome this constant juggling act by acquiring additional resources through outsourcing.
The bottom line is clear-- those companies quickest to embrace and master outsourcing will be establishing a clear competitive advantage over companies that chose to ignore this highly cost-effective way to augment staffing levels and maximize workflow on an “as needed basis”.
• Breaking Down Barriers Between Underwriting and Distribution
published January, 2007 – InsuranceNewsNet and InsureIntell, February, 2007; ProducersWEB, July, 2007
Breaking Down Barriers between Underwriting and Distribution
Executive Summary
A historical friction exists in the insurance industry between risk management and sales. A major challenge facing the industry is to navigate this friction and empower both underwriters and business development channels to work in a collaborative environment to produce optimum risk management outcomes and acquisition cycles. The key to success is being able to bring these two different, yet inextricably linked, disciplines together as part of a seamless transactional environment.
Introduction
The challenges confronting the insurance industry are numerous and well documented. Dynamics such as consolidation, new competitors such as banks ushered in during the Gramm-Leach-Bliley (GLB) era, shrinking producer channels, outsourcing/off-shoring, and pressure to increase the bottom line with less resources have all contributed to create today’s tenuous environment. For the underwriter, the mission undertaken every day is to develop and deliver appropriate and timely risk management decisions w hile not unduly impeding the company’s sales goals.
In an industry with increasingly shrinking margins, underwriters have little room for error: results that are 110% of expected is bad news but 90% of expected is a windfall. The friction lies in meeting 100% targeted mortality or morbidity results without hurting sales. Too often the underwriting department is mistakenly viewed as a hurdle that sales must overcome. Unfortunately for underwriting, the result of this dynamic can be “guilt by association” where underwriters are viewed as cost centers instead of what they truly are--profit centers.
One may logically ask, “If underwriters are not procuring new business, how can they be viewed as a profit center?” The answer is two-fold. First, and perhaps most obvious is that if an insurance company’s underwriting is sub-par, so too will be its bottom line. Simply put, underwriters have always been the first line of defense for an insurance company’s balance sheet. Secondly, for those companies who now integrate underwriting and business procurement as a seamless process, the underwriter not only fulfills their risk management mission but has been transformed into a recognized contributor to business development and revenue generation.
Underwriting as a Profit Center
What are the opportunities for transforming the role of the underwriter into a recognized profit center? The answer lies in harnessing the numerous opportunities for interaction with the customer over the course of the Customer Opportunity Lifecycle. For any insurance enterprise there are several points of contact with the customer during the lifecycle of the policyholder relationship.
The Customer Opportunity Lifecycle encompasses:
1. Sales/Policyholder Acquisition
2. Application Completion
3. Underwriting
4. Customer Service
5. Claims
The Customer Opportunity Lifecycle presents many opportunities for underwriting to create revenue based on risk assessments at each point of customer contact. Does your company maximize opportunities for interaction with its customers over these key points of contact? The difference between growth and contraction for an insurance operation in today’s hyper-competitive environment may lie in the answer to this critical question. The first step is harnessing synergies that exist between underwriters, sales, customer service, and claims. Enhancing the results of these areas can result in a new-found appreciation for the contributions that underwriting can make toward revenue generation while achieving targeted mortality and morbidity results.
For example: More and more companies are augmenting their producer channel with direct marketing programs utilizing mail, the internet, and direct response advertising. Customers interested in products such as term-life, annuities, individual health, long-term care, disability income, and varieties of supplemental insurance will typically respond to these promotions by phone to inquire about their options. Using a Tele-Underwriting process, companies receiving these calls can asses the level of risk associated with the applicant through a medically expanded interview as part of the initial application process. During the course of the telephone interview there are opportunities for the underwriter to maximize this point of contact, such as:
· the applicant can be referred to a licensed sales agent during the same phone call and offered additional products or higher face amounts based on how he or she is rated, or
· the applicant can either be declined or approved in an expedited manner (or quickly referred to underwriting for further assessment).
In this example the underwriter adds value by expediting the decision process and creating additional sales opportunities. Also, in the case of customer service or claims interactions there exist similar opportunities to quickly evaluate and then expedite the opportunities associated with that customer based on the outcome of a telephone risk assessment.
How does Underwriting become a Profit Center?
In Thomas L. Friedman’s recent best seller, “The World is Flat”[1], the author describes how the world in the early stages of the 21st Century has been impacted by collaborative technologies which have created the ability for people to work from any location. In essence Friedman describes a “flattened” world empowered by networks of technology and people woven together by the internet in a seamless, real-time environment—regardless of where the workers are located. What does this mean for the insurance industry? What does it mean for underwriting? Is it a threat? Is it an opportunity? Or is it both?
The threat is that anyone’s job could be moved to another location for less money and (perhaps) greater results. Conversely, the opportunity lies in using technology and its related concepts to one’s advantage by contributing to the enterprise wide goals of your company. The barriers to collaborating across a wide range of personnel and locations are almost entirely gone. Companies are moving quickly to embrace this new environment and here’s the good news: The necessary “technological advancements” are already at your fingertips in the form of an internet connection and a telephone.
Now is the time for companies to assess if they are selling and underwriting products in a vacuum or as an enterprise-wide “network”. Companies should determine which techniques, such as speed underwriting, tele-underwriting, and risk triage, could be used in concert with sales and marketing programs that can open the door to offering higher priced products (up-selling) or other types of products and riders (cross-selling). In an environment that seamlessly integrates risk management and marketing, opportunities for up-selling and/or cross-selling are created through the real-time linkage of underwriting and sales.
The formula is easy to understand: by placing the right risk management and sales personnel on the phone at the right time working from a web based environment; companies can approve/decline, increase, decrease, or modify the type, size, and/or features of an insurance product being sold, underwritten or serviced. The value of this approach is difficult to refute: by combining risk management and sales, companies can enhance revenue and profitability by increasing product availability, sales, service and productivity; all while decreasing unit costs.
Why Should Underwriting Operate as a Profit Center?
The insurance industry has changed radically over the last two decades and companies that wish to continue operating in the next decade must adapt. The unique talent found within an insurance enterprise will drive the process of adaptation. The talent that not only survives, but thrives in this new era will need to look beyond their specific areas of responsibility and think on an enterprise-wide basis. Underwriting and sales are two of the more important and unique functions of an insurance company. How these areas operate -- and co-operate -- will dictate much about how well a company functions.
A company’s leadership is primarily focused on overall performance and growth. If individuals and/or departments are thinking and acting the same way, then management tends to respond favorably to enterprise minded or “team players”. If areas so key to the success or failure of a company are actually working together to improve overall outcomes, and not just perpetuating the unique goals of a singular agenda, then management should be very pleased.
It is no secret that revenue generators are treated well by the companies they represent. As the industry landscape continues to shift on a daily basis, it would be wise for underwriters to position themselves as a recognized part of the revenue generating team. As the saying goes—the best offense is often times a strong defense.
Conclusion
Today’s world requires enterprise-wide thinking and collaborative action. Technology has made it possible for anyone to work as part of a team from anywhere. Insurance companies need to capitalize on every possible touch point with the consumer to create profitable revenue opportunities. By integrating risk management and sales, companies can speed up business acquisition, improve risk assessment, reduce costs, and enhance their bottom line.
1: The World is Flat (A Brief History of the Twenty-First Century), Thomas L. Friedman, Farrar, Straus, and Giroux, NYC, 2005
Original version published in On the Risk, December, 2005 as Underwriting as a Profit Center or How I Survived the 21st Century
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Breaking Down Barriers between Underwriting and Distribution
Executive Summary
A historical friction exists in the insurance industry between risk management and sales. A major challenge facing the industry is to navigate this friction and empower both underwriters and business development channels to work in a collaborative environment to produce optimum risk management outcomes and acquisition cycles. The key to success is being able to bring these two different, yet inextricably linked, disciplines together as part of a seamless transactional environment.
Introduction
The challenges confronting the insurance industry are numerous and well documented. Dynamics such as consolidation, new competitors such as banks ushered in during the Gramm-Leach-Bliley (GLB) era, shrinking producer channels, outsourcing/off-shoring, and pressure to increase the bottom line with less resources have all contributed to create today’s tenuous environment. For the underwriter, the mission undertaken every day is to develop and deliver appropriate and timely risk management decisions w hile not unduly impeding the company’s sales goals.
In an industry with increasingly shrinking margins, underwriters have little room for error: results that are 110% of expected is bad news but 90% of expected is a windfall. The friction lies in meeting 100% targeted mortality or morbidity results without hurting sales. Too often the underwriting department is mistakenly viewed as a hurdle that sales must overcome. Unfortunately for underwriting, the result of this dynamic can be “guilt by association” where underwriters are viewed as cost centers instead of what they truly are--profit centers.
One may logically ask, “If underwriters are not procuring new business, how can they be viewed as a profit center?” The answer is two-fold. First, and perhaps most obvious is that if an insurance company’s underwriting is sub-par, so too will be its bottom line. Simply put, underwriters have always been the first line of defense for an insurance company’s balance sheet. Secondly, for those companies who now integrate underwriting and business procurement as a seamless process, the underwriter not only fulfills their risk management mission but has been transformed into a recognized contributor to business development and revenue generation.
Underwriting as a Profit Center
What are the opportunities for transforming the role of the underwriter into a recognized profit center? The answer lies in harnessing the numerous opportunities for interaction with the customer over the course of the Customer Opportunity Lifecycle. For any insurance enterprise there are several points of contact with the customer during the lifecycle of the policyholder relationship.
The Customer Opportunity Lifecycle encompasses:
1. Sales/Policyholder Acquisition
2. Application Completion
3. Underwriting
4. Customer Service
5. Claims
The Customer Opportunity Lifecycle presents many opportunities for underwriting to create revenue based on risk assessments at each point of customer contact. Does your company maximize opportunities for interaction with its customers over these key points of contact? The difference between growth and contraction for an insurance operation in today’s hyper-competitive environment may lie in the answer to this critical question. The first step is harnessing synergies that exist between underwriters, sales, customer service, and claims. Enhancing the results of these areas can result in a new-found appreciation for the contributions that underwriting can make toward revenue generation while achieving targeted mortality and morbidity results.
For example: More and more companies are augmenting their producer channel with direct marketing programs utilizing mail, the internet, and direct response advertising. Customers interested in products such as term-life, annuities, individual health, long-term care, disability income, and varieties of supplemental insurance will typically respond to these promotions by phone to inquire about their options. Using a Tele-Underwriting process, companies receiving these calls can asses the level of risk associated with the applicant through a medically expanded interview as part of the initial application process. During the course of the telephone interview there are opportunities for the underwriter to maximize this point of contact, such as:
· the applicant can be referred to a licensed sales agent during the same phone call and offered additional products or higher face amounts based on how he or she is rated, or
· the applicant can either be declined or approved in an expedited manner (or quickly referred to underwriting for further assessment).
In this example the underwriter adds value by expediting the decision process and creating additional sales opportunities. Also, in the case of customer service or claims interactions there exist similar opportunities to quickly evaluate and then expedite the opportunities associated with that customer based on the outcome of a telephone risk assessment.
How does Underwriting become a Profit Center?
In Thomas L. Friedman’s recent best seller, “The World is Flat”[1], the author describes how the world in the early stages of the 21st Century has been impacted by collaborative technologies which have created the ability for people to work from any location. In essence Friedman describes a “flattened” world empowered by networks of technology and people woven together by the internet in a seamless, real-time environment—regardless of where the workers are located. What does this mean for the insurance industry? What does it mean for underwriting? Is it a threat? Is it an opportunity? Or is it both?
The threat is that anyone’s job could be moved to another location for less money and (perhaps) greater results. Conversely, the opportunity lies in using technology and its related concepts to one’s advantage by contributing to the enterprise wide goals of your company. The barriers to collaborating across a wide range of personnel and locations are almost entirely gone. Companies are moving quickly to embrace this new environment and here’s the good news: The necessary “technological advancements” are already at your fingertips in the form of an internet connection and a telephone.
Now is the time for companies to assess if they are selling and underwriting products in a vacuum or as an enterprise-wide “network”. Companies should determine which techniques, such as speed underwriting, tele-underwriting, and risk triage, could be used in concert with sales and marketing programs that can open the door to offering higher priced products (up-selling) or other types of products and riders (cross-selling). In an environment that seamlessly integrates risk management and marketing, opportunities for up-selling and/or cross-selling are created through the real-time linkage of underwriting and sales.
The formula is easy to understand: by placing the right risk management and sales personnel on the phone at the right time working from a web based environment; companies can approve/decline, increase, decrease, or modify the type, size, and/or features of an insurance product being sold, underwritten or serviced. The value of this approach is difficult to refute: by combining risk management and sales, companies can enhance revenue and profitability by increasing product availability, sales, service and productivity; all while decreasing unit costs.
Why Should Underwriting Operate as a Profit Center?
The insurance industry has changed radically over the last two decades and companies that wish to continue operating in the next decade must adapt. The unique talent found within an insurance enterprise will drive the process of adaptation. The talent that not only survives, but thrives in this new era will need to look beyond their specific areas of responsibility and think on an enterprise-wide basis. Underwriting and sales are two of the more important and unique functions of an insurance company. How these areas operate -- and co-operate -- will dictate much about how well a company functions.
A company’s leadership is primarily focused on overall performance and growth. If individuals and/or departments are thinking and acting the same way, then management tends to respond favorably to enterprise minded or “team players”. If areas so key to the success or failure of a company are actually working together to improve overall outcomes, and not just perpetuating the unique goals of a singular agenda, then management should be very pleased.
It is no secret that revenue generators are treated well by the companies they represent. As the industry landscape continues to shift on a daily basis, it would be wise for underwriters to position themselves as a recognized part of the revenue generating team. As the saying goes—the best offense is often times a strong defense.
Conclusion
Today’s world requires enterprise-wide thinking and collaborative action. Technology has made it possible for anyone to work as part of a team from anywhere. Insurance companies need to capitalize on every possible touch point with the consumer to create profitable revenue opportunities. By integrating risk management and sales, companies can speed up business acquisition, improve risk assessment, reduce costs, and enhance their bottom line.
1: The World is Flat (A Brief History of the Twenty-First Century), Thomas L. Friedman, Farrar, Straus, and Giroux, NYC, 2005
Original version published in On the Risk, December, 2005 as Underwriting as a Profit Center or How I Survived the 21st Century
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
• Bringing Together the Pieces of the Insurance Puzzle
published February, 2007 - InsuranceNewsNet and HealthDecisions, InsureIntell, April, 2007, ProducersWEB, August, 2007
Bringing Together the Pieces of the Insurance Puzzle
Executive Summary
In the previous installment of this series we discussed the need for underwriters to think and act like profit centers. We introduced the concept of underwriting and distribution working together in unison to improve both risk experience and sales results. Keeping ones head down and not thinking or caring about how your actions impact the enterprise is not a formula for success in today’s “flattened world”. In this installment we will examine the pieces of the insurance puzzle, explore how to bring them together, and contemplate ways to make sure you are on the winning side of the drive to decentralize (outsource) insurance industry processes.
What are the pieces of the puzzle?
True mastery of the insurance puzzle requires understanding the lifecycle of an insurance policy. As it is with any lifecycle there is a beginning, middle, and an end. The difference between success and failure in a business environment is the ability to recognize and harness the points of connection across a transactional lifecycle. Too often key business functions operate in a silo failing to see the big picture or recognize the opportunities to have a more significant impact on the overall operations and bottom line.
In the case of an insurance transaction, this beginning/middle/end lifecycle can be equated to the pieces of a puzzle.
The first piece of the puzzle is the front-end of a transaction in the form of initial customer interaction through the process of sales or customer service. Whether a new customer is being acquired or a current customer is being supported-- this is an important first opportunity to create and/or enhance the customer relationship.
The next piece of the puzzle is the middle stage of a transaction where applications for coverage are taken and underwriting (in a variety of forms) is conducted. This critical stage can make or break a company-- yet this is probably the most misunderstood and taken for granted piece of the puzzle. Not only does accurate risk assessment have a direct impact on a company’s bottom line, but this stage of the puzzle is the bridge between the front-end and the final piece of the puzzle.
The back-end of a transaction-- the final piece of the puzzle-- is where administrative and business processing as well as claims management and customer support occurs. This is where success in the first two pieces of the puzzle is delivered or where deficiencies emerge. For most companies, this is where the bottom line is measured.
Keeping Pace with Rapid Change
Today, there are a number of societal and business dynamics that make it impractical for an insurance enterprise to operate in non-collaborative silos. As populations age and become more mobile, it is difficult to stem the tide of attrition across the ranks of employees that have received extensive training and posses much in the way of a company’s institutional knowledge. Companies are no longer investing in significant training programs and employees no longer enter into a “lifetime contract” with their employers, as was the case in decades past. We live in a much more disposable society and that cuts both ways—it can hurt employees but that dynamic is also coming around to haunt companies.
For insurers these dynamics have manifested in a number of ways that now permeate the industry:
· The captive agent is becoming scarce and the broker system has become less focused on insurance products and more directed towards financial planning—of which insurance is just one of the items on a commoditized punch list.
· One of the last generations of underwriters to receive extensive, company specific training and experience over years is reaching retirement age en-masse.
· It is becoming increasingly difficult to handle underwriting and administrative operations during the peaks and valleys of the annual insurance-business cycle.
· Cost savings and improved workflow from automation and outsourcing are becoming difficult to deny and/or ignore.
Every piece of the puzzle presents challenges and opportunities. The answer to surviving this rapid pace of change is to not fight these dynamics—but instead embrace them.
Who are the winners?
We live in what has been referred to as a “flattened world” where collaborative, web enabled technologies can now tie qualified personnel together to work on a Real-Time basis from any location in North America-- and around the world. In today’s reality the bad news is also the good news—what makes it possible for jobs to be outsourced and/or moved overseas also makes it possible for jobs to be moved into your living room or home office. This means that underwriters contemplating the next chapter of their life can do so with the comfort of knowing that flexible arrangements making use of their skills are becoming much more common and accepted—and in fact it is quickly becoming a necessity. This also means that underwriting departments can not only soften the blow of key retirements, but actually bolster their resources by tapping into a significant talent pool on an as needed basis.
The companies quickest to adapt and make use of these flexible resource arrangements are the ones in the best position to prosper in the “flattened world”. Adapting to the use of flexible assets -- by either becoming one or mastering the use of them -- is the key to becoming a winning piece of the puzzle.
But that’s not how we do it…….
Can you imagine the conversations around the lunch table at the typewriter factory thirty years ago when the topic of personal computers first came up? Documents had been written on typewriters for decades. They were in every office, school, and a majority of homes throughout the world. Who would ever give up their solid, reliable and ubiquitous typewriter for something like a personal computer? We’re set for life at the typewriter factory! Well, take a look around your office or home right now and find a typewriter (I’ll wait). The business world moves fast and it has no remorse about leaving late-adopters behind.
In today’s flexible economy companies must look at their processes and break them down into component pieces and then ask 2 questions:
· What can be automated?
· What can be outsourced?
Underwriting at any level is a very serious and specific science. Unfortunately, as we all know, it is a discipline that can be easily underestimated in both its complexity and bottom-line impact for an insurance company. But what happens to a company’s risk experience if there is a lack of qualified talent due to attrition or workflow overload?
To assure successful risk management and expeditious approve/modify/reject capability; it is critically important that experienced underwriters and risk managers are used for the risk assessment process—not chasing missing application information or glorified data entry.
It is a matter of looking at workflow to identify where the bottlenecks are (too much paper, not enough staff, too much administrative work and not enough underwriting, etc.) and looking at how automation and outsourcing can get the process moving again. It is not about replacing people with cheaper options it is about empowering staff to do what they do best. Underwriters and other specialized personnel should not be diverted to perform administrative tasks that could be more cost effectively automated and/or outsourced. An insurance company should NEVER abdicate its responsibility to manage risk. An insurance company should ALWAYS look at how it can do a better job of managing risk and improving efficiencies and bottom-line results.
.
So where do we go from here?
Companies need to take a hard look at their volume cycles and staff/budget levels. If volume exceeds staff capacity to turn around applications in a timely manner then outsourcing should be considered. The resources are out there and the expertise exists. There are enough proven models and resources across the industry that no company need go in this direction alone.
Some specific models currently being used by the industry include:
· Companies are overcoming the “paper problem” with imaging technology and/or sending data entry and interpretation to offshore locations where the process can be done for a fraction of the cost and during night hours. These companies are experiencing a workflow process that is operating at almost 24 hours a day with access to electronic files now constantly at their fingertips.
· Companies are overcoming staffing problems caused by retirements, disabilities, peak volumes and holidays by using seasoned and semi-retired underwriters. One company was able to utilize a dedicated team of remote underwriters to work from their homes on an ongoing basis. Using a secure web-enabled platform, the remote team underwrites individual life insurance cases with approval limits up to $5 million.
· Companies are overcoming delays and costs associated with acquiring new business through tele-underwriting programs. These companies are experiencing reduced costs for acquiring new business (including reducing APS orders), increased quantity and quality of information acquired for application completion and underwriting, faster more accurate application approval and declinations, improved customer service, and acknowledged improvements in overall process for the producer, the carrier, and the customer.
· Companies are overcoming the divide between distribution and underwriting by integrating these functions. One company is experiencing great success by referring sales from financial advisors directly through a “rules-based” application completion and tele-underwriting process. Speed of issue, increased policy placement, customer experience, and persistency have all increased dramatically once sales and underwriting started working together as a team.
Conclusion
Competition is fierce and the winners in today’s flexible economy are those that can not only adapt, but also prosper from the impact of collaborative technologies and the decentralization of the corporate environment. Companies need to breach operating silos and bring customer acquisition/service, application completion/underwriting, and administrations/processing together into a seamless, collaborative environment. One of the tools to accomplish this goal is to break down the lifecycle of an insurance policy into the beginning, middle, and end stages of a transaction.
Unavoidable market dynamics are challenging insurance companies in the form of staff attrition, lack of training, long-term career development, and the emergence of global automation and outsourcing. Insurers can take advantage of outsourcing and remote arrangements to handle volume cycles and manage the impact of staffing challenges. Further, companies able to bring together the pieces of the puzzle and identify opportunities for outsourcing those functions that hinder the productivity of operations and staff will be steps ahead of the competition.
Original version published in On the Risk June, 2006 as Underwriting as a Profit Center: Bringing Together the Pieces of the Puzzle
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Bringing Together the Pieces of the Insurance Puzzle
Executive Summary
In the previous installment of this series we discussed the need for underwriters to think and act like profit centers. We introduced the concept of underwriting and distribution working together in unison to improve both risk experience and sales results. Keeping ones head down and not thinking or caring about how your actions impact the enterprise is not a formula for success in today’s “flattened world”. In this installment we will examine the pieces of the insurance puzzle, explore how to bring them together, and contemplate ways to make sure you are on the winning side of the drive to decentralize (outsource) insurance industry processes.
What are the pieces of the puzzle?
True mastery of the insurance puzzle requires understanding the lifecycle of an insurance policy. As it is with any lifecycle there is a beginning, middle, and an end. The difference between success and failure in a business environment is the ability to recognize and harness the points of connection across a transactional lifecycle. Too often key business functions operate in a silo failing to see the big picture or recognize the opportunities to have a more significant impact on the overall operations and bottom line.
In the case of an insurance transaction, this beginning/middle/end lifecycle can be equated to the pieces of a puzzle.
The first piece of the puzzle is the front-end of a transaction in the form of initial customer interaction through the process of sales or customer service. Whether a new customer is being acquired or a current customer is being supported-- this is an important first opportunity to create and/or enhance the customer relationship.
The next piece of the puzzle is the middle stage of a transaction where applications for coverage are taken and underwriting (in a variety of forms) is conducted. This critical stage can make or break a company-- yet this is probably the most misunderstood and taken for granted piece of the puzzle. Not only does accurate risk assessment have a direct impact on a company’s bottom line, but this stage of the puzzle is the bridge between the front-end and the final piece of the puzzle.
The back-end of a transaction-- the final piece of the puzzle-- is where administrative and business processing as well as claims management and customer support occurs. This is where success in the first two pieces of the puzzle is delivered or where deficiencies emerge. For most companies, this is where the bottom line is measured.
Keeping Pace with Rapid Change
Today, there are a number of societal and business dynamics that make it impractical for an insurance enterprise to operate in non-collaborative silos. As populations age and become more mobile, it is difficult to stem the tide of attrition across the ranks of employees that have received extensive training and posses much in the way of a company’s institutional knowledge. Companies are no longer investing in significant training programs and employees no longer enter into a “lifetime contract” with their employers, as was the case in decades past. We live in a much more disposable society and that cuts both ways—it can hurt employees but that dynamic is also coming around to haunt companies.
For insurers these dynamics have manifested in a number of ways that now permeate the industry:
· The captive agent is becoming scarce and the broker system has become less focused on insurance products and more directed towards financial planning—of which insurance is just one of the items on a commoditized punch list.
· One of the last generations of underwriters to receive extensive, company specific training and experience over years is reaching retirement age en-masse.
· It is becoming increasingly difficult to handle underwriting and administrative operations during the peaks and valleys of the annual insurance-business cycle.
· Cost savings and improved workflow from automation and outsourcing are becoming difficult to deny and/or ignore.
Every piece of the puzzle presents challenges and opportunities. The answer to surviving this rapid pace of change is to not fight these dynamics—but instead embrace them.
Who are the winners?
We live in what has been referred to as a “flattened world” where collaborative, web enabled technologies can now tie qualified personnel together to work on a Real-Time basis from any location in North America-- and around the world. In today’s reality the bad news is also the good news—what makes it possible for jobs to be outsourced and/or moved overseas also makes it possible for jobs to be moved into your living room or home office. This means that underwriters contemplating the next chapter of their life can do so with the comfort of knowing that flexible arrangements making use of their skills are becoming much more common and accepted—and in fact it is quickly becoming a necessity. This also means that underwriting departments can not only soften the blow of key retirements, but actually bolster their resources by tapping into a significant talent pool on an as needed basis.
The companies quickest to adapt and make use of these flexible resource arrangements are the ones in the best position to prosper in the “flattened world”. Adapting to the use of flexible assets -- by either becoming one or mastering the use of them -- is the key to becoming a winning piece of the puzzle.
But that’s not how we do it…….
Can you imagine the conversations around the lunch table at the typewriter factory thirty years ago when the topic of personal computers first came up? Documents had been written on typewriters for decades. They were in every office, school, and a majority of homes throughout the world. Who would ever give up their solid, reliable and ubiquitous typewriter for something like a personal computer? We’re set for life at the typewriter factory! Well, take a look around your office or home right now and find a typewriter (I’ll wait). The business world moves fast and it has no remorse about leaving late-adopters behind.
In today’s flexible economy companies must look at their processes and break them down into component pieces and then ask 2 questions:
· What can be automated?
· What can be outsourced?
Underwriting at any level is a very serious and specific science. Unfortunately, as we all know, it is a discipline that can be easily underestimated in both its complexity and bottom-line impact for an insurance company. But what happens to a company’s risk experience if there is a lack of qualified talent due to attrition or workflow overload?
To assure successful risk management and expeditious approve/modify/reject capability; it is critically important that experienced underwriters and risk managers are used for the risk assessment process—not chasing missing application information or glorified data entry.
It is a matter of looking at workflow to identify where the bottlenecks are (too much paper, not enough staff, too much administrative work and not enough underwriting, etc.) and looking at how automation and outsourcing can get the process moving again. It is not about replacing people with cheaper options it is about empowering staff to do what they do best. Underwriters and other specialized personnel should not be diverted to perform administrative tasks that could be more cost effectively automated and/or outsourced. An insurance company should NEVER abdicate its responsibility to manage risk. An insurance company should ALWAYS look at how it can do a better job of managing risk and improving efficiencies and bottom-line results.
.
So where do we go from here?
Companies need to take a hard look at their volume cycles and staff/budget levels. If volume exceeds staff capacity to turn around applications in a timely manner then outsourcing should be considered. The resources are out there and the expertise exists. There are enough proven models and resources across the industry that no company need go in this direction alone.
Some specific models currently being used by the industry include:
· Companies are overcoming the “paper problem” with imaging technology and/or sending data entry and interpretation to offshore locations where the process can be done for a fraction of the cost and during night hours. These companies are experiencing a workflow process that is operating at almost 24 hours a day with access to electronic files now constantly at their fingertips.
· Companies are overcoming staffing problems caused by retirements, disabilities, peak volumes and holidays by using seasoned and semi-retired underwriters. One company was able to utilize a dedicated team of remote underwriters to work from their homes on an ongoing basis. Using a secure web-enabled platform, the remote team underwrites individual life insurance cases with approval limits up to $5 million.
· Companies are overcoming delays and costs associated with acquiring new business through tele-underwriting programs. These companies are experiencing reduced costs for acquiring new business (including reducing APS orders), increased quantity and quality of information acquired for application completion and underwriting, faster more accurate application approval and declinations, improved customer service, and acknowledged improvements in overall process for the producer, the carrier, and the customer.
· Companies are overcoming the divide between distribution and underwriting by integrating these functions. One company is experiencing great success by referring sales from financial advisors directly through a “rules-based” application completion and tele-underwriting process. Speed of issue, increased policy placement, customer experience, and persistency have all increased dramatically once sales and underwriting started working together as a team.
Conclusion
Competition is fierce and the winners in today’s flexible economy are those that can not only adapt, but also prosper from the impact of collaborative technologies and the decentralization of the corporate environment. Companies need to breach operating silos and bring customer acquisition/service, application completion/underwriting, and administrations/processing together into a seamless, collaborative environment. One of the tools to accomplish this goal is to break down the lifecycle of an insurance policy into the beginning, middle, and end stages of a transaction.
Unavoidable market dynamics are challenging insurance companies in the form of staff attrition, lack of training, long-term career development, and the emergence of global automation and outsourcing. Insurers can take advantage of outsourcing and remote arrangements to handle volume cycles and manage the impact of staffing challenges. Further, companies able to bring together the pieces of the puzzle and identify opportunities for outsourcing those functions that hinder the productivity of operations and staff will be steps ahead of the competition.
Original version published in On the Risk June, 2006 as Underwriting as a Profit Center: Bringing Together the Pieces of the Puzzle
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Underwriting in your Underpants: Remote Underwriting Study 2007
Released at 37th Annual MUD Meeting as reported by National Underwriter, January, 2007, and featured by Insurance News Net, January, 2007, InsureIntell, February, 2007, Hot Notes by Hank George, 2007, posted on SmartBrief
Underwriting in your Underpants: Remote Underwriting Study 2007
Executive Summary
In December, 2006 we published the collective thoughts of a number of very experienced underwriters about the state of remote underwriting. They had all made a successful transition from working in the home office to their own “home office”, and they were more than willing to share their insight.
During a series of in-depth interviews in the spring of 2006, we heard unanimous agreement that companies both large and small are sharing the same problem: too much work and not enough trained underwriters to go around. The supply of experienced underwriters has been shrinking for years and there has not been enough emphasis placed on long-term training to replenish this diminishing resource.
All of our participants agreed that well trained and experienced underwriting resources are getting harder to find and it will only get worse. They recommend that it is time to start thinking out of the box and consider using remote/outsourced underwriters to fill the gaps.
The response to this article was strong enough to warrant further analysis of the growth of remote underwriting. Starting in December, 2006 and continuing into January, 2007, we revisited this issue in the form of a survey, which included both closed ended and open ended questions, to seek a better understanding of this issue from the perspective of three distinct cohorts:
· Remote Underwriters (currently working from home as a contractor or employee)
· Life/Health Carriers (surveys sent to 225 companies)
· Reinsurers (all of the top U.S. life reinsurers participated)
More Similarities than Differences
We found more areas of agreement than disagreement across the three categories of participants. For example, all participants agree that remote underwriters have more undistracted time, and are more or equally productive as compared to working in an office environment. Helping to drive that productivity boost is the fact that the majority experienced 30 or more hours of underwriting a week as well as significant “off-hours” underwriting (before or after office hours and weekends). The majority of participants agree that to be successful with remote underwriting, dedicated office space and equipment is important. They also advised that pro-active efforts should be made to stay current with underwriting and medical information, and that it is important to maintain peer level communication. A theme that continues to emerge and be confirmed through objective measures is the lack of training and long-term grooming of underwriters. All agree that they would make positive recommendations to colleagues about remote underwriting.
What Advice Would You Give?
A section of the survey asked two open ended questions of our participants. We found the range of responses and the level of enthusiasm that so many participants expressed about this issue to be fascinating. Although the general consensus about remote underwriting is most definitely positive, there were also recommendations for caution and due diligence for anyone embarking in this direction.
1) “What advice would you give to an underwriter contemplating working from home?”
The underwriters currently working in a remote environment offered practical advice to potential compatriots based on many hours of experience working from home. They emphasized the need to be disciplined, a self-starter and self-sufficient, and cautioned that if an underwriter is easily distracted or needs outside motivation then working remote is not for them. They also stressed the importance of having the proper equipment and working environment. They have all established a dedicated office space to work in and go to their “office” on a regimented schedule just like going to an office outside of the home. It is important to be organized, manage time effectively and set up a work schedule and adhere to it, but they recommend that one should also remain available to work more than the normal business hours and be flexible. As a practical matter, one should always finish what you start and not allow for interruptions. They also spoke of the need to remain current by staying in touch with peer contacts and continue underwriter and industry education.
The carriers’ agreed with much of the practical advice that the remote underwriters had to offer, and they also offered caution about the realities of becoming isolated from an office environment and other people. They started out by asking a bottom line question: Are you sure you can handle the lack of contact with your fellow employee? They observed that remote underwriting is appropriate for people whose lives take precedence over their career and if one is choosing a pure, technical career path then remote would be a viable option. If a leadership position is desired, then it is important to remain in the office. Once working in a remote environment, communication with the home office is crucial and time needs to be made to make visits to the home office on a regular basis. Don’t let relationships and rapport with the management team and colleagues erode. Understand also that you will be asked to produce more file work, and you must make the experience of being remote as seamless and invisible as possible. Lastly, it takes special skills to be successful when working remotely– focus, discipline and organization. Not everyone is suited to work remotely.
In the case of the reinsurers who participated, one summed up succinctly what they look for when considering business with carriers using remote underwriters as part of their staffing model:
“I am in reinsurance and we have to consider constantly when quoting for direct writers how their underwriting staff functions and if they have a remote force how they are being managed and accounted for:”
• Must have undisturbed time (no kids, pets, outside calls other than emergencies)
• Must be self-disciplined, not easily distracted
• Must have a dedicated area that is not used by any other family member
• Must observe the same confidentiality and ethic issues as in the Home Office
• Must have dedicated equipment
2) “What advice would you give companies contemplating using remote underwriters?”
Given the opportunity, our remote underwriters were pleased to offer companies words of wisdom on successfully venturing into remote underwriting based on their personal experience. Before using a remote underwriter, a company should make sure the applicant has a verifiable ability to work well with little supervision and already has training and experience working on their own. Check resumes and references to make sure they are experienced and fluent in medical terminology, vocabulary and can spell well, and audit cases immediately when starting a new person to verify skills and experience. They emphasized the need to maintain close communication and include the remote underwriters in key meetings, new directives and case clinics, and offer training via telephone or internet conferencing. Make your best effort to communicate with the remote underwriters as if they were in the office and provide constructive feedback on how the remote is performing. Most underwriters working remotely will work hard because they want to prove themselves. But, set realistic and measurable goals, and make sure you provide the underwriters with all of the tools and systems that are required to do their job in an efficient and productive manner. Be flexible with remote underwriters’ time and they will work more hours than you expect.
The carriers that responded were able to give advice to other companies based on their experience running remote underwriting programs. They started by accentuating the positive. Remote underwriting is an excellent solution to overcome a shortage of talent when location of the home office is problematic. But, the carriers also offered words of caution about how to select the appropriate personnel to work in a remote environment. You need to be very careful of who you allow to work in this environment and ensure that (remote) staff are self-motivated and driven individuals so production and quality are not compromised. Home office underwriters should not be allowed to work remotely until they have firmly established themselves within the company. Once you have remote underwriters in place, have a service level agreement (SLA) with each remote so there is a mutual understanding of expectations, results, etc., and you need established metrics to check production. Be clear upfront on how you want your cases underwritten and provide a manual to make the transition easier. In terms of areas that will determine the long term success of a remote underwriting program, issues with technology and connectivity are critical. The voice and IT connection between the remote underwriters, the home office, field offices and producers should all be seamless. Lastly, for carriers not yet using remote underwriters but contemplating starting a program, a couple of ways to begin were recommended. Either start with a pilot program, or by outsourcing or hiring contractors instead of employees since this makes it much easier to adjust personnel arrangements.
The reinsurers offered a solid check list of priorities for carries to consider as they launch or evaluate a remote underwriting program:
· Must provide equipment/communication needs/IT security
· Must provide clear and precise expectations in terms of productivity, delivery, accountability (job description must be specific to a remote position)
· Must have measurement controls to audit remote function (total output, time service, offers, placement, phone interaction)
· Must have periodic “conferencing” or “training” interaction with remote staff
· Must treat remote employee with the same consideration as Home Office and not ignore (i.e. out of sight, out of mind)
Conclusions-- Myths vs. Facts
Myth: Remote underwriting is a passing fad that will never catch on.
Fact: Remote underwriting is in fact a trend that has been growing for years and there are
numerous examples of companies running successful programs for 2-5 years or more.
Myth: Remote underwriting could replace the need to staff an office with underwriters.
Fact: Remote underwriting is not a replacement for the home office underwriter. It is a
tool to enhance productivity through staff augmentation, offset the loss of
experienced personnel to retirement/attrition, and a way to overcome relocation
problems when attempting to attract personnel.
Myth: Reinsurers look unfavorably at companies using remote underwriters.
Fact: Reinsurers do not look down on the use of remote underwriting, and in fact, as a
group, reinsurers rate the environment for remote underwriting even more favorably than both the carriers and the remote underwriters– with the majority of reinsures participating in this study currently using remote underwriters themselves.
Myth: Using remote underwriters is a great way to cut costs and trim budgets.
Fact: The majority of companies indicated that they achieved no cost savings through the
use of remote underwriters. A number of them did qualify their answer by stating
it was still too early to accurately compare and quantify the difference of costs
associated with remote underwriters vs. that of home office underwriters.
Myth: Starting a remote underwriting program is as easy as letting some staff work from
home.
Fact: A prudent way to start a remote underwriting program would be to first launch a
pilot program using a select group of underwriters that already proven their acumen
and initiative. Areas that a company will want to trouble shoot and understand are
IT connectivity (computer and phone), production metrics, operating guidelines,
legal issues, and quantifying costs. Another viable option for using remote
underwriters for the first time would be through the use of an outsourcing company
with proven experience, systems, and personnel.
Myth: Remote Underwriters operate in a “vacuum”.
Fact: The most successful remote underwriting programs are a seamless extension of
the home office. Remote underwriters need to be supported by clear and consistent
communication and their technology must be up to date, securely connected to
the home office and receive dedicated IT support. When dealing with agents or
brokers, the fact that a remote underwriter is working on a case should be
indistinguishable.
Myth: Anyone can switch from an office environment to underwriting from home.
Fact: Remote underwriting is not for everyone. Remote underwriters need to be well
organized, self-disciplined, and not require external motivation and supervision to
consistently deliver their assigned cases.
Myth: Remote underwriting is a way to begin and/or advance an underwriting career
path.
Fact: The typical profile of a remote underwriter is someone with 10 to 20 years of home
office experience. Many remote underwriters have already achieved senior rank as
an underwriter and are now looking beyond career growth as top priority. They
find the flexibility of hours and location to be more important than office dynamics
and opportunities for advancement. Both the remote underwriters and carriers
caution that lack of “face time” and regular interaction will limit, if not rule out,
career advancement.
Original version published in On the Risk June, 2007 as Underwriting in the 21st Century: Underwriting in your Underpants
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Underwriting in your Underpants: Remote Underwriting Study 2007
Executive Summary
In December, 2006 we published the collective thoughts of a number of very experienced underwriters about the state of remote underwriting. They had all made a successful transition from working in the home office to their own “home office”, and they were more than willing to share their insight.
During a series of in-depth interviews in the spring of 2006, we heard unanimous agreement that companies both large and small are sharing the same problem: too much work and not enough trained underwriters to go around. The supply of experienced underwriters has been shrinking for years and there has not been enough emphasis placed on long-term training to replenish this diminishing resource.
All of our participants agreed that well trained and experienced underwriting resources are getting harder to find and it will only get worse. They recommend that it is time to start thinking out of the box and consider using remote/outsourced underwriters to fill the gaps.
The response to this article was strong enough to warrant further analysis of the growth of remote underwriting. Starting in December, 2006 and continuing into January, 2007, we revisited this issue in the form of a survey, which included both closed ended and open ended questions, to seek a better understanding of this issue from the perspective of three distinct cohorts:
· Remote Underwriters (currently working from home as a contractor or employee)
· Life/Health Carriers (surveys sent to 225 companies)
· Reinsurers (all of the top U.S. life reinsurers participated)
More Similarities than Differences
We found more areas of agreement than disagreement across the three categories of participants. For example, all participants agree that remote underwriters have more undistracted time, and are more or equally productive as compared to working in an office environment. Helping to drive that productivity boost is the fact that the majority experienced 30 or more hours of underwriting a week as well as significant “off-hours” underwriting (before or after office hours and weekends). The majority of participants agree that to be successful with remote underwriting, dedicated office space and equipment is important. They also advised that pro-active efforts should be made to stay current with underwriting and medical information, and that it is important to maintain peer level communication. A theme that continues to emerge and be confirmed through objective measures is the lack of training and long-term grooming of underwriters. All agree that they would make positive recommendations to colleagues about remote underwriting.
What Advice Would You Give?
A section of the survey asked two open ended questions of our participants. We found the range of responses and the level of enthusiasm that so many participants expressed about this issue to be fascinating. Although the general consensus about remote underwriting is most definitely positive, there were also recommendations for caution and due diligence for anyone embarking in this direction.
1) “What advice would you give to an underwriter contemplating working from home?”
The underwriters currently working in a remote environment offered practical advice to potential compatriots based on many hours of experience working from home. They emphasized the need to be disciplined, a self-starter and self-sufficient, and cautioned that if an underwriter is easily distracted or needs outside motivation then working remote is not for them. They also stressed the importance of having the proper equipment and working environment. They have all established a dedicated office space to work in and go to their “office” on a regimented schedule just like going to an office outside of the home. It is important to be organized, manage time effectively and set up a work schedule and adhere to it, but they recommend that one should also remain available to work more than the normal business hours and be flexible. As a practical matter, one should always finish what you start and not allow for interruptions. They also spoke of the need to remain current by staying in touch with peer contacts and continue underwriter and industry education.
The carriers’ agreed with much of the practical advice that the remote underwriters had to offer, and they also offered caution about the realities of becoming isolated from an office environment and other people. They started out by asking a bottom line question: Are you sure you can handle the lack of contact with your fellow employee? They observed that remote underwriting is appropriate for people whose lives take precedence over their career and if one is choosing a pure, technical career path then remote would be a viable option. If a leadership position is desired, then it is important to remain in the office. Once working in a remote environment, communication with the home office is crucial and time needs to be made to make visits to the home office on a regular basis. Don’t let relationships and rapport with the management team and colleagues erode. Understand also that you will be asked to produce more file work, and you must make the experience of being remote as seamless and invisible as possible. Lastly, it takes special skills to be successful when working remotely– focus, discipline and organization. Not everyone is suited to work remotely.
In the case of the reinsurers who participated, one summed up succinctly what they look for when considering business with carriers using remote underwriters as part of their staffing model:
“I am in reinsurance and we have to consider constantly when quoting for direct writers how their underwriting staff functions and if they have a remote force how they are being managed and accounted for:”
• Must have undisturbed time (no kids, pets, outside calls other than emergencies)
• Must be self-disciplined, not easily distracted
• Must have a dedicated area that is not used by any other family member
• Must observe the same confidentiality and ethic issues as in the Home Office
• Must have dedicated equipment
2) “What advice would you give companies contemplating using remote underwriters?”
Given the opportunity, our remote underwriters were pleased to offer companies words of wisdom on successfully venturing into remote underwriting based on their personal experience. Before using a remote underwriter, a company should make sure the applicant has a verifiable ability to work well with little supervision and already has training and experience working on their own. Check resumes and references to make sure they are experienced and fluent in medical terminology, vocabulary and can spell well, and audit cases immediately when starting a new person to verify skills and experience. They emphasized the need to maintain close communication and include the remote underwriters in key meetings, new directives and case clinics, and offer training via telephone or internet conferencing. Make your best effort to communicate with the remote underwriters as if they were in the office and provide constructive feedback on how the remote is performing. Most underwriters working remotely will work hard because they want to prove themselves. But, set realistic and measurable goals, and make sure you provide the underwriters with all of the tools and systems that are required to do their job in an efficient and productive manner. Be flexible with remote underwriters’ time and they will work more hours than you expect.
The carriers that responded were able to give advice to other companies based on their experience running remote underwriting programs. They started by accentuating the positive. Remote underwriting is an excellent solution to overcome a shortage of talent when location of the home office is problematic. But, the carriers also offered words of caution about how to select the appropriate personnel to work in a remote environment. You need to be very careful of who you allow to work in this environment and ensure that (remote) staff are self-motivated and driven individuals so production and quality are not compromised. Home office underwriters should not be allowed to work remotely until they have firmly established themselves within the company. Once you have remote underwriters in place, have a service level agreement (SLA) with each remote so there is a mutual understanding of expectations, results, etc., and you need established metrics to check production. Be clear upfront on how you want your cases underwritten and provide a manual to make the transition easier. In terms of areas that will determine the long term success of a remote underwriting program, issues with technology and connectivity are critical. The voice and IT connection between the remote underwriters, the home office, field offices and producers should all be seamless. Lastly, for carriers not yet using remote underwriters but contemplating starting a program, a couple of ways to begin were recommended. Either start with a pilot program, or by outsourcing or hiring contractors instead of employees since this makes it much easier to adjust personnel arrangements.
The reinsurers offered a solid check list of priorities for carries to consider as they launch or evaluate a remote underwriting program:
· Must provide equipment/communication needs/IT security
· Must provide clear and precise expectations in terms of productivity, delivery, accountability (job description must be specific to a remote position)
· Must have measurement controls to audit remote function (total output, time service, offers, placement, phone interaction)
· Must have periodic “conferencing” or “training” interaction with remote staff
· Must treat remote employee with the same consideration as Home Office and not ignore (i.e. out of sight, out of mind)
Conclusions-- Myths vs. Facts
Myth: Remote underwriting is a passing fad that will never catch on.
Fact: Remote underwriting is in fact a trend that has been growing for years and there are
numerous examples of companies running successful programs for 2-5 years or more.
Myth: Remote underwriting could replace the need to staff an office with underwriters.
Fact: Remote underwriting is not a replacement for the home office underwriter. It is a
tool to enhance productivity through staff augmentation, offset the loss of
experienced personnel to retirement/attrition, and a way to overcome relocation
problems when attempting to attract personnel.
Myth: Reinsurers look unfavorably at companies using remote underwriters.
Fact: Reinsurers do not look down on the use of remote underwriting, and in fact, as a
group, reinsurers rate the environment for remote underwriting even more favorably than both the carriers and the remote underwriters– with the majority of reinsures participating in this study currently using remote underwriters themselves.
Myth: Using remote underwriters is a great way to cut costs and trim budgets.
Fact: The majority of companies indicated that they achieved no cost savings through the
use of remote underwriters. A number of them did qualify their answer by stating
it was still too early to accurately compare and quantify the difference of costs
associated with remote underwriters vs. that of home office underwriters.
Myth: Starting a remote underwriting program is as easy as letting some staff work from
home.
Fact: A prudent way to start a remote underwriting program would be to first launch a
pilot program using a select group of underwriters that already proven their acumen
and initiative. Areas that a company will want to trouble shoot and understand are
IT connectivity (computer and phone), production metrics, operating guidelines,
legal issues, and quantifying costs. Another viable option for using remote
underwriters for the first time would be through the use of an outsourcing company
with proven experience, systems, and personnel.
Myth: Remote Underwriters operate in a “vacuum”.
Fact: The most successful remote underwriting programs are a seamless extension of
the home office. Remote underwriters need to be supported by clear and consistent
communication and their technology must be up to date, securely connected to
the home office and receive dedicated IT support. When dealing with agents or
brokers, the fact that a remote underwriter is working on a case should be
indistinguishable.
Myth: Anyone can switch from an office environment to underwriting from home.
Fact: Remote underwriting is not for everyone. Remote underwriters need to be well
organized, self-disciplined, and not require external motivation and supervision to
consistently deliver their assigned cases.
Myth: Remote underwriting is a way to begin and/or advance an underwriting career
path.
Fact: The typical profile of a remote underwriter is someone with 10 to 20 years of home
office experience. Many remote underwriters have already achieved senior rank as
an underwriter and are now looking beyond career growth as top priority. They
find the flexibility of hours and location to be more important than office dynamics
and opportunities for advancement. Both the remote underwriters and carriers
caution that lack of “face time” and regular interaction will limit, if not rule out,
career advancement.
Original version published in On the Risk June, 2007 as Underwriting in the 21st Century: Underwriting in your Underpants
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Underwriting in your Underpants: Life Outside the Home Office
published December, 2006 - On the Risk and InsuranceNewsNet, March, 2007, ProducersWEB, August, 2007
Underwriting in your Underpants: Life Outside the Home Office
Executive Summary
Previous articles in this series have explored how to break down silos between underwriting and distribution, the emergence of outsourcing and automation as important underwriting productivity drivers, and we have analyzed ways to get more value from the ubiquitous --yet paradoxical-- Attending Physician Statement (APS).
The common thread throughout this series of articles is overcoming the challenges that underwriting departments must face everyday as the demand on underwriting departments increase while available resources decrease. For this installment, we spoke with a number of underwriters who have decades of risk management experience, about their perceptions of the industry today and what it is like to be part of the growing trend of “remote underwriting”.
Introduction
A “perfect storm” of trends in underwriting has emerged to challenge the industry in the early years of the 21st Century:
An alarming number of the most experienced underwriters have, or are reaching retirement age.
There are not enough well trained underwriters coming up through the ranks to fill the void.
The demand on underwriting departments to keep up is being fueled by the increasing volume and complexity of applications being generated by a growing, and longer living, baby boom generation.
When looking at the major online job search sites (Monster.com, Careerbuilder.com, etc.) there are over 4,000 cumulative postings for open underwriting positions across the life/health insurance industry on any given day. That is a lot of competition for a shrinking resource pool. Many companies are adapting to this reality by working with full and part time remote underwriters as either employees or contractors.
For this article, we interviewed a number of underwriters that are currently working from home. We asked them questions about how working outside of the home office environment has impacted their lifestyle and professional growth, and how they perceive trends that are impacting the insurance industry. The underwriters we interviewed all have decades of experience and were very candid about the positive and negative aspects of operating as a “remote” or “outsourced” underwriter.
** Each heading is a question asked of the participating underwriters
and an aggregate summary of their responses follows**
How many years have you been an underwriter?
All of the participants had significant experience as an underwriter working for life and health insurers with a range between 5 and 40 years. All have been underwriting on an outsourced basis anywhere from 1-5 years.
What companies were you employed by when you were a “home office” underwriter?
Our participating underwriters have worked for large and small insurance companies, a BGA, and in some cases for insurers that no longer exist as their former selves: Bankers Life, BISYS, Connecticut Mutual, First Continental, General American, MONY, National Life of Vermont, The Hartford, United Healthcare, and UnumProvident.
What product lines have you been responsible for?
The product lines that our underwriters have underwritten were primarily life and STD/LTD for group and individual markets, some annuities, healthcare, and LTC.
What level of underwriter were you when you left the home office?
All of the underwriters had achieved significant rank and responsibilities by the time they went out on their own. We spoke with former director and chief level underwriters, underwriting officers, and senior vice presidents. Some had been responsible for underwriting and operations with staffs in the hundreds and multi-million dollar budgets, while others had run small teams and remote offices across the U.S. (and in Canada).
How would you describe the current environment for insurers?
The industry seems to be regrouping after a period of turbulence with reinsurers and claims issues. Companies are experiencing record profits and it appears that senior executive pay is at an all-time high. A definite contributing factor to the rise in profitability is cost cutting. Underwriting departments’ staff and budgets are not growing at the same pace as new business (and the demand for ever faster time service). There is a noticeable trend over the last few years to outsource some functions that traditionally were handled in-house. Flex schedules and tele-commuting have also been on the rise. Outsourcing work has been a way to access hard to find underwriting talent and to cut costs such as benefits and overhead. There seems to be a decline in confidence of internal underwriters and awareness that significant talent is now available on the “open market”.
The general consensus of the current condition of underwriting departments was not entirely favorable: understaffed and overworked, big growth in trial applications and APS bottlenecks, limited administrative support, not enough training, deteriorating relations with the field, too much pressure for quantity over quality, too much interference and micro-managing, too much non-essential communication (email) and distractions (unproductive meetings) and too much stress.
What do you see happening in underwriting departments?
Underwriting is still a conservative science, but there has been a noticeable shift in attitudes over the last thirty years to higher risk tolerance as interpretation of medical science and societal issues has evolved—many things that were once entirely unacceptable are now common place (and almost quaint in retrospect). A shift in attitude has also happened in the acceptance of underwriters working from outside of the home office environment. The trend in this direction is more pronounced on the life/DI/LTC side than health. There are still issues to resolve with communication, interaction with medical directors, and remote use of systems. Overall the misconception that outsourcing means people will lose jobs is quickly being replaced by the realization that it is actually a productivity enhancer. Management seems to now view the trend as less about cost/job cutting and more about access to hard to find talent and increased productivity.
At first outsourcing seemed to be taking hold quicker in small to mid-size companies because of both cost and access to underwriter issues, but larger companies are moving in this direction now for the same reasons. As more volume is driven by brokers and the marketing of guarantee issue and simplified products; underwriting departments are not staffed to keep up. There has been a large increase in trial applications which means more work and the rising importance of allocating already stretched resources to sift through the profitable and unprofitable cases. Costs and delays associated with requirements continue to be a bottleneck for underwriting departments. Today, underwriters are being judged as much on quantity of work and time service as they are on risk experience. This dynamic is creating an even bigger divide between the upper ranks of underwriting management and the rank and file staff.
Is there enough training and grooming of underwriters today?
In the past, companies put much more emphasis on formal, long-term training. Underwriters operated almost like an apprentice and were part of training units. They would be groomed and work their way up inside the same company over years. Now underwriters are “on their own”. Underwriters rising through the ranks over years are quite rare. Companies are less interested in training and instead look to hire the talent they need when they need it. Companies can’t afford to wait years for home grown talent to work their way up through the system. Training remains an important aspect of an underwriter’s development and being able to stay current on evolving underwriting and medical issues. Training still exists but it has become more “modular” and specific to conditions or trends. Training and staying current is now more the responsibility of the individual to find the resources and time on their own.
This reality has made the highly skilled/trained underwriter a hard to find (and valuable) commodity as experienced underwriters that have been in the business 25 years or more begin to retire. For some underwriters this can mean a lucrative “free agent” environment or opportunities to operate on their own terms as a contractor.
Describe the experience of being an underwriter working from home
Every one of the underwriters interviewed cited how much they enjoy the freedom that working from home has allowed them. They enjoy the ability to better accommodate personal time with their professional responsibilities. Many are able to contribute to family obligations by doing their work during off hours. The trade-offs cited include: feeling like they need to work harder to justify their at-home status, as well as feelings of isolation and being “out of the loop” when not interacting in an office environment.
The underwriters say that they are more productive because they are not interrupted by in-office distractions such as non-productive meetings, water cooler gossip, and office politics. They say that remote system access and the option to work on a 24-7 basis contributes to their productivity, and communications through email and conf calls keep them informed. They do need to take the initiative to stay “in the loop” with colleagues, read industry periodicals, attend industry meetings and join organizations such as AHOU to stay involved. All of the underwriters agreed that working from home is not for everybody and that it takes discipline, self-motivation and the ability to overcome the “isolation” factor to succeed.
What advice would you give to an underwriter contemplating working from home?
You will need to set up dedicated space in your home and treat it as if you are going to the office—even though you are not commuting to an office, your attitude needs to be that you are “commuting” to the next room when at work. Build and stick to routines and establish discipline with your schedule and work habits. You will need to make the effort to stay on top of trends in underwriting and should be active with underwriting groups. If you are a contractor, don’t put all your eggs in one basket and look to hook up with outsourcing companies as a source of assignments. Make sure you understand your finances and the tax benefits of working from your home office. You will need your equipment to be up to date, dedicated to this use and you should have high-speed internet. Lastly, try experimenting with working from home while still in the office before setting up shop and making the move.
What advice would you give companies contemplating using remote underwriters?
Companies need to realize that much of the best underwriting talent is now retiring but still interested in working with creative/flexible arrangements. Smart companies can actually benefit from this trend. Realize that remote workers can actually be more productive and are very motivated to prove it. Some work can be broken up like an assembly line shared between remote underwriters and home office underwriters (i.e. tele-underwriting, APS summaries, quick quotes, claims review, etc.). Match up remote and on-site underwriters from a cost-benefit and productivity comparison perspective. Examine IT options for remote and secure connectivity. Companies should at least experiment with remote underwriters to get a feel for how it would work for them. Get a plan in place because this it where underwriting is going.
Conclusion
Companies both large and small are sharing the same problem: too much work and not enough trained underwriters to go around. The supply of experienced underwriters has been shrinking for years and there has not been enough emphasis placed on long-term training to replenish this diminishing resource.
All of our participants agreed that the chief underwriter’s responsibility is to deliver optimum mortality/morbidity results. Today’s environment can either propel or hinder an underwriting department’s ability to deliver those desired results. Well trained and experienced underwriting resources are getting harder to find and it will only get worse. It is time to start thinking out of the box and consider all the tools that are available. Using remote/outsourced underwriters is a potential means to deliver maximum results with the most cost and time effective resources available.
Successful careers in underwriting are extending beyond a centrally located corporate office—with both underwriters and home offices benefiting.
Original version published in On the Risk September, 2006 as Underwriting in the 21st Century: Life Outside the Home Office
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Underwriting in your Underpants: Life Outside the Home Office
Executive Summary
Previous articles in this series have explored how to break down silos between underwriting and distribution, the emergence of outsourcing and automation as important underwriting productivity drivers, and we have analyzed ways to get more value from the ubiquitous --yet paradoxical-- Attending Physician Statement (APS).
The common thread throughout this series of articles is overcoming the challenges that underwriting departments must face everyday as the demand on underwriting departments increase while available resources decrease. For this installment, we spoke with a number of underwriters who have decades of risk management experience, about their perceptions of the industry today and what it is like to be part of the growing trend of “remote underwriting”.
Introduction
A “perfect storm” of trends in underwriting has emerged to challenge the industry in the early years of the 21st Century:
An alarming number of the most experienced underwriters have, or are reaching retirement age.
There are not enough well trained underwriters coming up through the ranks to fill the void.
The demand on underwriting departments to keep up is being fueled by the increasing volume and complexity of applications being generated by a growing, and longer living, baby boom generation.
When looking at the major online job search sites (Monster.com, Careerbuilder.com, etc.) there are over 4,000 cumulative postings for open underwriting positions across the life/health insurance industry on any given day. That is a lot of competition for a shrinking resource pool. Many companies are adapting to this reality by working with full and part time remote underwriters as either employees or contractors.
For this article, we interviewed a number of underwriters that are currently working from home. We asked them questions about how working outside of the home office environment has impacted their lifestyle and professional growth, and how they perceive trends that are impacting the insurance industry. The underwriters we interviewed all have decades of experience and were very candid about the positive and negative aspects of operating as a “remote” or “outsourced” underwriter.
** Each heading is a question asked of the participating underwriters
and an aggregate summary of their responses follows**
How many years have you been an underwriter?
All of the participants had significant experience as an underwriter working for life and health insurers with a range between 5 and 40 years. All have been underwriting on an outsourced basis anywhere from 1-5 years.
What companies were you employed by when you were a “home office” underwriter?
Our participating underwriters have worked for large and small insurance companies, a BGA, and in some cases for insurers that no longer exist as their former selves: Bankers Life, BISYS, Connecticut Mutual, First Continental, General American, MONY, National Life of Vermont, The Hartford, United Healthcare, and UnumProvident.
What product lines have you been responsible for?
The product lines that our underwriters have underwritten were primarily life and STD/LTD for group and individual markets, some annuities, healthcare, and LTC.
What level of underwriter were you when you left the home office?
All of the underwriters had achieved significant rank and responsibilities by the time they went out on their own. We spoke with former director and chief level underwriters, underwriting officers, and senior vice presidents. Some had been responsible for underwriting and operations with staffs in the hundreds and multi-million dollar budgets, while others had run small teams and remote offices across the U.S. (and in Canada).
How would you describe the current environment for insurers?
The industry seems to be regrouping after a period of turbulence with reinsurers and claims issues. Companies are experiencing record profits and it appears that senior executive pay is at an all-time high. A definite contributing factor to the rise in profitability is cost cutting. Underwriting departments’ staff and budgets are not growing at the same pace as new business (and the demand for ever faster time service). There is a noticeable trend over the last few years to outsource some functions that traditionally were handled in-house. Flex schedules and tele-commuting have also been on the rise. Outsourcing work has been a way to access hard to find underwriting talent and to cut costs such as benefits and overhead. There seems to be a decline in confidence of internal underwriters and awareness that significant talent is now available on the “open market”.
The general consensus of the current condition of underwriting departments was not entirely favorable: understaffed and overworked, big growth in trial applications and APS bottlenecks, limited administrative support, not enough training, deteriorating relations with the field, too much pressure for quantity over quality, too much interference and micro-managing, too much non-essential communication (email) and distractions (unproductive meetings) and too much stress.
What do you see happening in underwriting departments?
Underwriting is still a conservative science, but there has been a noticeable shift in attitudes over the last thirty years to higher risk tolerance as interpretation of medical science and societal issues has evolved—many things that were once entirely unacceptable are now common place (and almost quaint in retrospect). A shift in attitude has also happened in the acceptance of underwriters working from outside of the home office environment. The trend in this direction is more pronounced on the life/DI/LTC side than health. There are still issues to resolve with communication, interaction with medical directors, and remote use of systems. Overall the misconception that outsourcing means people will lose jobs is quickly being replaced by the realization that it is actually a productivity enhancer. Management seems to now view the trend as less about cost/job cutting and more about access to hard to find talent and increased productivity.
At first outsourcing seemed to be taking hold quicker in small to mid-size companies because of both cost and access to underwriter issues, but larger companies are moving in this direction now for the same reasons. As more volume is driven by brokers and the marketing of guarantee issue and simplified products; underwriting departments are not staffed to keep up. There has been a large increase in trial applications which means more work and the rising importance of allocating already stretched resources to sift through the profitable and unprofitable cases. Costs and delays associated with requirements continue to be a bottleneck for underwriting departments. Today, underwriters are being judged as much on quantity of work and time service as they are on risk experience. This dynamic is creating an even bigger divide between the upper ranks of underwriting management and the rank and file staff.
Is there enough training and grooming of underwriters today?
In the past, companies put much more emphasis on formal, long-term training. Underwriters operated almost like an apprentice and were part of training units. They would be groomed and work their way up inside the same company over years. Now underwriters are “on their own”. Underwriters rising through the ranks over years are quite rare. Companies are less interested in training and instead look to hire the talent they need when they need it. Companies can’t afford to wait years for home grown talent to work their way up through the system. Training remains an important aspect of an underwriter’s development and being able to stay current on evolving underwriting and medical issues. Training still exists but it has become more “modular” and specific to conditions or trends. Training and staying current is now more the responsibility of the individual to find the resources and time on their own.
This reality has made the highly skilled/trained underwriter a hard to find (and valuable) commodity as experienced underwriters that have been in the business 25 years or more begin to retire. For some underwriters this can mean a lucrative “free agent” environment or opportunities to operate on their own terms as a contractor.
Describe the experience of being an underwriter working from home
Every one of the underwriters interviewed cited how much they enjoy the freedom that working from home has allowed them. They enjoy the ability to better accommodate personal time with their professional responsibilities. Many are able to contribute to family obligations by doing their work during off hours. The trade-offs cited include: feeling like they need to work harder to justify their at-home status, as well as feelings of isolation and being “out of the loop” when not interacting in an office environment.
The underwriters say that they are more productive because they are not interrupted by in-office distractions such as non-productive meetings, water cooler gossip, and office politics. They say that remote system access and the option to work on a 24-7 basis contributes to their productivity, and communications through email and conf calls keep them informed. They do need to take the initiative to stay “in the loop” with colleagues, read industry periodicals, attend industry meetings and join organizations such as AHOU to stay involved. All of the underwriters agreed that working from home is not for everybody and that it takes discipline, self-motivation and the ability to overcome the “isolation” factor to succeed.
What advice would you give to an underwriter contemplating working from home?
You will need to set up dedicated space in your home and treat it as if you are going to the office—even though you are not commuting to an office, your attitude needs to be that you are “commuting” to the next room when at work. Build and stick to routines and establish discipline with your schedule and work habits. You will need to make the effort to stay on top of trends in underwriting and should be active with underwriting groups. If you are a contractor, don’t put all your eggs in one basket and look to hook up with outsourcing companies as a source of assignments. Make sure you understand your finances and the tax benefits of working from your home office. You will need your equipment to be up to date, dedicated to this use and you should have high-speed internet. Lastly, try experimenting with working from home while still in the office before setting up shop and making the move.
What advice would you give companies contemplating using remote underwriters?
Companies need to realize that much of the best underwriting talent is now retiring but still interested in working with creative/flexible arrangements. Smart companies can actually benefit from this trend. Realize that remote workers can actually be more productive and are very motivated to prove it. Some work can be broken up like an assembly line shared between remote underwriters and home office underwriters (i.e. tele-underwriting, APS summaries, quick quotes, claims review, etc.). Match up remote and on-site underwriters from a cost-benefit and productivity comparison perspective. Examine IT options for remote and secure connectivity. Companies should at least experiment with remote underwriters to get a feel for how it would work for them. Get a plan in place because this it where underwriting is going.
Conclusion
Companies both large and small are sharing the same problem: too much work and not enough trained underwriters to go around. The supply of experienced underwriters has been shrinking for years and there has not been enough emphasis placed on long-term training to replenish this diminishing resource.
All of our participants agreed that the chief underwriter’s responsibility is to deliver optimum mortality/morbidity results. Today’s environment can either propel or hinder an underwriting department’s ability to deliver those desired results. Well trained and experienced underwriting resources are getting harder to find and it will only get worse. It is time to start thinking out of the box and consider all the tools that are available. Using remote/outsourced underwriters is a potential means to deliver maximum results with the most cost and time effective resources available.
Successful careers in underwriting are extending beyond a centrally located corporate office—with both underwriters and home offices benefiting.
Original version published in On the Risk September, 2006 as Underwriting in the 21st Century: Life Outside the Home Office
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Exploring the Direct-to-Consumer Channel
published September, 2007 - On the Risk, and InsuranceNewsNet, September, 2007, ProducersWEB, November, 2007, posted on SmartBrief
Exploring the Direct-to-Consumer Channel
Executive Summary
This article series continues to explore the evolving landscape of underwriting in the 21st Century. Some of the themes that have already been covered include: overcoming barriers between underwriting and distribution, maximizing the value of an APS, the growth of remote underwriting, and risk factors associated with private aviation. Another area worth exploring is the growth of direct-to-consumer distribution channels and its intersection with underwriting. For this article we took a look at the various means by which carriers and producers are reaching the consumer through mediums such as the internet, broadcast and print advertising, direct mail, and the use of contact centers to directly engage prospective insureds on a mass scale via the telephone.
In addition to our primary research, we spoke in detail with Colonial Penn, one of the leading carriers selling a variety of insurance products direct-to-consumer, and InsWeb, one of the leading online insurance portals.
Introduction
The insurance industry has numerous options to consider for distribution channels. Without question the producer channel is still the primary driver of business, but alternative channels such as banking, affinity marketing, and worksite are just some examples that have become increasingly prominent. Another growing channel is direct-to-consumer marketing.
According to the KEHRER-LIMRA Bank Insurance Benchmarking Study, banks that sell life and health insurance through direct marketing channels such as mail, tele-services, and the internet yield “per bank customer” revenue equal to banks that opt to refer leads externally to traditional channels such as brokerage or captive agents. The difference is that the banks using direct marketing experience significantly higher net revenue because, “the acquisition expenses of direct marketing pale in comparison to the cost of face-to-face selling”.
Direct marketing is a long-standing and proven method for selling almost every type of good and service in today’s economy. The benefits of direct-to-consumer marketing come from speaking directly to the customer. It can be both a cost effective addition to a company’s mix of distribution channels and an opportunity to leverage existing communication vehicles. It is also an opportunity to build a bridge between the underwriting and marketing areas of an insurance company.
Real Time Underwriting as Part of the Sales Process
Direct-to-consumer marketing can be a tool to create leads for producers or it can be a low cost - high margin alternative distribution channel. Revenue opportunities lay in both the acquisition of new subscribers and the up-selling/cross-selling of existing policy holders. There are four elements to effective direct-to-consumer marketing of insurance products:
1. Advertising mediums (broadcast, print and direct mail, on-line push/pull)
2. Fulfillment vehicles (call center, mail house, and website)
3. Underwriting (tele-underwriting and risk triage)
4. Relationship Management (customer service, administration)
Utilizing a risk triage process, applicants can be screened at the point of initial contact and then further evaluated for eligibility conducting a phone based personal history interview and/or underwritten by senior lever underwriters. Following a simple script, answers provided during an initial interview, or via a web portal, will quickly determine if the applicant’s health history warrants further consideration. If so, a more detailed interview following a rules-based survey will help determine if a policy could be issued in an expedited manner, or if it is necessary to obtain additional information under further review by an underwriter and/or medical professionals. In addition, information acquired during this process can also open the door to further marketing opportunities to cross-sell other products or up-sell higher face amounts.
Real time risk management in support of a direct-to-consumer marketed product can expedite the application-to-issue cycle, reduce instances of incomplete applications and stalled issuance, and reduce new business acquisition costs. By incorporating simple underwriting practices across the lifecycle of customer interaction, companies can open up new opportunities to approve/decline, increase, decrease, or modify the type, size, and/or features of any insurance product being sold or serviced.
According to Tom Fiordimondo, Vice President for Life/Health Marketing with Colonial Penn, “We believe in the value of incorporating some form of risk management up front into direct-to-consumer sales to avoid being burned later by bad risk experience. We measure mortality experience, persistency, and claims over years to better manage mortality expenses. In the process, our underwriting efforts contribute verifiable risk results to better define marketing budgets based on real results and quantifiable bottom line impact of policies being sold to particular market segments.”
From the perspective of InsWeb Senior Vice President of Life Insurance Sales and Operations Todd Ewing, “InsWeb is like the Lending Tree of insurance, with 5 million transactions per year all conducted online and by phone. Our goal is to pre-screen and qualify applicants for the best rate available. We use an automatic rate calculator based on an initial screening application and then through a tele-underwriting process, further review a candidate’s insurability. Two issues that have become more of an underwriting factor are: healthy lifestyles and foreign travel. We try to educate the applicant on how to get the best results from their exams and use available medical information for the advantage of both the applicant and the carrier, so the applicant can get the best rate and the carrier gets the right match based on their established criteria.”
Direct-to-Consumer products are for the most part small face value policies and fly under the radar screen of reinsurers. As marketing programs and risk management becomes more sophisticated, the face values are getting bigger, and as they exceed the $100,000-$200,000 level reinsurance starts to become a factor. In the case of web portal sales, it is not uncommon to see policies written in the seven figure range and fall under the jurisdiction of a reinsurance arrangement. There have been instances of reinsurer backlash from claim experience because pricing can become aggressive in this channel and reinsurers have pulled out or refused to cover policies/claims generated through this channel.
Direct-to-Consumer Communication Mediums
There are numerous vehicles being used today by the insurance industry to reach the consumer directly. Carriers and producers are both adept at using advertising mediums such as the radio, TV, and print outlets like local or national newspapers and magazines. The internet as an insurance sales tool has grown considerably over the last 5-10 years as well. Insurance companies such as New York Life in partnership with AARP, Colonial Penn, BCBSA, MEGA, Gerber Life, AEGON-Direct, ING Direct, Progressive, and GEICO all run successful direct-to-consumer marketing programs.
Colonial Penn relies exclusively on these outlets to reach consumers and measures effectiveness from a variety of factors. According to Tom Fiordimondo, “We measure marketing costs against annual premiums to derive an ROI. We look at: cost to generate leads vs. quantity of leads generated vs. percentage leads converted vs. policy persistency to track our marketing costs and rank best to worst mediums. TV is an expensive medium with production costs alone hitting six figures before one lead has been generated. By comparison, mail is very inexpensive and can deliver precision targeting. If looking for an older audience, TV can be effective by reaching people at home during the day. Whereas working age people watch TV in the evening when rates get much more expensive. It is important to have an internet strategy with the less than 40 age range being very internet driven and we see the 40-60 age range as being much more viable online than the 60 and older age range.”
The internet is the sole domain of InsWeb and they see customer behavior relative to online shopping continually evolving. Executive Vice President of Business Development Jamie Pickles says, “We are an online screening portal for carriers and a pricing aggregator for consumers. We have seen an evolution in consumer behavior with more comfort and confidence shopping online. The consumer views the process as having three stages:
1) Initiate
2) Inform
3) Narrow Options
As this channel continues to grow and produce better educated/prepared consumers—carriers, agents, and brokers are all recognizing the importance of an online, direct-to-consumer strategy.”
Direct-to-Consumer vs. Producer?
When it comes to developing new business, the producer is still king. But is a direct-to-consumer strategy a threat to the producer? The answer is—it depends. The pervasive products sold through this channel are simplified issue and are not products that producers focus on. Yet there is a big and underserved market for lower amount policies and the direct-to-consumer approach is the ideal way to reach them. By adding a risk triage approach to the screening process, companies are better qualifying the leads they generate and opening up the door to sell higher amounts and/or offer additional products and riders.
According to Tom Fiordimondo, “Premiums generated through direct-to-consumer marketing constitute a single-digit percentage of the industry total as compared to producer generated premium—and that may always be the case. Web portals, a form of lead generation, have been on the rise and tend to generate higher face value policies. Producers themselves are actually very skilled users of direct-to-consumer marketing as a source of lead generation and carriers also use the same to generate leads for producer channels. As opposed to the producers, we tend to look at all marketers in the direct-to-consumer space as our real competitors (sellers of Thigh Masters and Ab-Blasters included). We are competing for airtime and eyeballs on our mail pieces, and we are all after the same thing—the attention of the consumer and their willingness to pick up the phone and act now.”
Conclusion
Traditionally, underwriting and marketing operate in silos. The real time nature of leads generated through direct-to-consumer marketing efforts open up the opportunity for underwriting and marketing to work together as partners. Marketing can inform Underwriting of what is happening in the marketplace with competitors’ rating and pricing relative to a particular product being promoted, and underwriters get an opportunity to interact with the applicant without any mediation or management by producers. Underwriting can help inform Marketing about what kind of applicants are responding to a promotion and if the products and pricing are compatible with the messages and mediums being used to drive responses. Both sides can benefit from real time gathering and deciphering of market intelligence, which allows for testing marketing campaigns and product mixes before incurring the expense of a major product introduction.
By adding a direct-to-consumer capability: insurers are bolstering both their marketing and underwriting capability, opening up a channel that is ideally suited to reach underserved market segments, communicating directly with consumers in a cost effective manner, and helping to drive more revenue to the bottom line.
Original version published in On the Risk September, 2007 as Underwriting in the 21st Century: Exploring the Direct-to-Consumer Channel
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
Exploring the Direct-to-Consumer Channel
Executive Summary
This article series continues to explore the evolving landscape of underwriting in the 21st Century. Some of the themes that have already been covered include: overcoming barriers between underwriting and distribution, maximizing the value of an APS, the growth of remote underwriting, and risk factors associated with private aviation. Another area worth exploring is the growth of direct-to-consumer distribution channels and its intersection with underwriting. For this article we took a look at the various means by which carriers and producers are reaching the consumer through mediums such as the internet, broadcast and print advertising, direct mail, and the use of contact centers to directly engage prospective insureds on a mass scale via the telephone.
In addition to our primary research, we spoke in detail with Colonial Penn, one of the leading carriers selling a variety of insurance products direct-to-consumer, and InsWeb, one of the leading online insurance portals.
Introduction
The insurance industry has numerous options to consider for distribution channels. Without question the producer channel is still the primary driver of business, but alternative channels such as banking, affinity marketing, and worksite are just some examples that have become increasingly prominent. Another growing channel is direct-to-consumer marketing.
According to the KEHRER-LIMRA Bank Insurance Benchmarking Study, banks that sell life and health insurance through direct marketing channels such as mail, tele-services, and the internet yield “per bank customer” revenue equal to banks that opt to refer leads externally to traditional channels such as brokerage or captive agents. The difference is that the banks using direct marketing experience significantly higher net revenue because, “the acquisition expenses of direct marketing pale in comparison to the cost of face-to-face selling”.
Direct marketing is a long-standing and proven method for selling almost every type of good and service in today’s economy. The benefits of direct-to-consumer marketing come from speaking directly to the customer. It can be both a cost effective addition to a company’s mix of distribution channels and an opportunity to leverage existing communication vehicles. It is also an opportunity to build a bridge between the underwriting and marketing areas of an insurance company.
Real Time Underwriting as Part of the Sales Process
Direct-to-consumer marketing can be a tool to create leads for producers or it can be a low cost - high margin alternative distribution channel. Revenue opportunities lay in both the acquisition of new subscribers and the up-selling/cross-selling of existing policy holders. There are four elements to effective direct-to-consumer marketing of insurance products:
1. Advertising mediums (broadcast, print and direct mail, on-line push/pull)
2. Fulfillment vehicles (call center, mail house, and website)
3. Underwriting (tele-underwriting and risk triage)
4. Relationship Management (customer service, administration)
Utilizing a risk triage process, applicants can be screened at the point of initial contact and then further evaluated for eligibility conducting a phone based personal history interview and/or underwritten by senior lever underwriters. Following a simple script, answers provided during an initial interview, or via a web portal, will quickly determine if the applicant’s health history warrants further consideration. If so, a more detailed interview following a rules-based survey will help determine if a policy could be issued in an expedited manner, or if it is necessary to obtain additional information under further review by an underwriter and/or medical professionals. In addition, information acquired during this process can also open the door to further marketing opportunities to cross-sell other products or up-sell higher face amounts.
Real time risk management in support of a direct-to-consumer marketed product can expedite the application-to-issue cycle, reduce instances of incomplete applications and stalled issuance, and reduce new business acquisition costs. By incorporating simple underwriting practices across the lifecycle of customer interaction, companies can open up new opportunities to approve/decline, increase, decrease, or modify the type, size, and/or features of any insurance product being sold or serviced.
According to Tom Fiordimondo, Vice President for Life/Health Marketing with Colonial Penn, “We believe in the value of incorporating some form of risk management up front into direct-to-consumer sales to avoid being burned later by bad risk experience. We measure mortality experience, persistency, and claims over years to better manage mortality expenses. In the process, our underwriting efforts contribute verifiable risk results to better define marketing budgets based on real results and quantifiable bottom line impact of policies being sold to particular market segments.”
From the perspective of InsWeb Senior Vice President of Life Insurance Sales and Operations Todd Ewing, “InsWeb is like the Lending Tree of insurance, with 5 million transactions per year all conducted online and by phone. Our goal is to pre-screen and qualify applicants for the best rate available. We use an automatic rate calculator based on an initial screening application and then through a tele-underwriting process, further review a candidate’s insurability. Two issues that have become more of an underwriting factor are: healthy lifestyles and foreign travel. We try to educate the applicant on how to get the best results from their exams and use available medical information for the advantage of both the applicant and the carrier, so the applicant can get the best rate and the carrier gets the right match based on their established criteria.”
Direct-to-Consumer products are for the most part small face value policies and fly under the radar screen of reinsurers. As marketing programs and risk management becomes more sophisticated, the face values are getting bigger, and as they exceed the $100,000-$200,000 level reinsurance starts to become a factor. In the case of web portal sales, it is not uncommon to see policies written in the seven figure range and fall under the jurisdiction of a reinsurance arrangement. There have been instances of reinsurer backlash from claim experience because pricing can become aggressive in this channel and reinsurers have pulled out or refused to cover policies/claims generated through this channel.
Direct-to-Consumer Communication Mediums
There are numerous vehicles being used today by the insurance industry to reach the consumer directly. Carriers and producers are both adept at using advertising mediums such as the radio, TV, and print outlets like local or national newspapers and magazines. The internet as an insurance sales tool has grown considerably over the last 5-10 years as well. Insurance companies such as New York Life in partnership with AARP, Colonial Penn, BCBSA, MEGA, Gerber Life, AEGON-Direct, ING Direct, Progressive, and GEICO all run successful direct-to-consumer marketing programs.
Colonial Penn relies exclusively on these outlets to reach consumers and measures effectiveness from a variety of factors. According to Tom Fiordimondo, “We measure marketing costs against annual premiums to derive an ROI. We look at: cost to generate leads vs. quantity of leads generated vs. percentage leads converted vs. policy persistency to track our marketing costs and rank best to worst mediums. TV is an expensive medium with production costs alone hitting six figures before one lead has been generated. By comparison, mail is very inexpensive and can deliver precision targeting. If looking for an older audience, TV can be effective by reaching people at home during the day. Whereas working age people watch TV in the evening when rates get much more expensive. It is important to have an internet strategy with the less than 40 age range being very internet driven and we see the 40-60 age range as being much more viable online than the 60 and older age range.”
The internet is the sole domain of InsWeb and they see customer behavior relative to online shopping continually evolving. Executive Vice President of Business Development Jamie Pickles says, “We are an online screening portal for carriers and a pricing aggregator for consumers. We have seen an evolution in consumer behavior with more comfort and confidence shopping online. The consumer views the process as having three stages:
1) Initiate
2) Inform
3) Narrow Options
As this channel continues to grow and produce better educated/prepared consumers—carriers, agents, and brokers are all recognizing the importance of an online, direct-to-consumer strategy.”
Direct-to-Consumer vs. Producer?
When it comes to developing new business, the producer is still king. But is a direct-to-consumer strategy a threat to the producer? The answer is—it depends. The pervasive products sold through this channel are simplified issue and are not products that producers focus on. Yet there is a big and underserved market for lower amount policies and the direct-to-consumer approach is the ideal way to reach them. By adding a risk triage approach to the screening process, companies are better qualifying the leads they generate and opening up the door to sell higher amounts and/or offer additional products and riders.
According to Tom Fiordimondo, “Premiums generated through direct-to-consumer marketing constitute a single-digit percentage of the industry total as compared to producer generated premium—and that may always be the case. Web portals, a form of lead generation, have been on the rise and tend to generate higher face value policies. Producers themselves are actually very skilled users of direct-to-consumer marketing as a source of lead generation and carriers also use the same to generate leads for producer channels. As opposed to the producers, we tend to look at all marketers in the direct-to-consumer space as our real competitors (sellers of Thigh Masters and Ab-Blasters included). We are competing for airtime and eyeballs on our mail pieces, and we are all after the same thing—the attention of the consumer and their willingness to pick up the phone and act now.”
Conclusion
Traditionally, underwriting and marketing operate in silos. The real time nature of leads generated through direct-to-consumer marketing efforts open up the opportunity for underwriting and marketing to work together as partners. Marketing can inform Underwriting of what is happening in the marketplace with competitors’ rating and pricing relative to a particular product being promoted, and underwriters get an opportunity to interact with the applicant without any mediation or management by producers. Underwriting can help inform Marketing about what kind of applicants are responding to a promotion and if the products and pricing are compatible with the messages and mediums being used to drive responses. Both sides can benefit from real time gathering and deciphering of market intelligence, which allows for testing marketing campaigns and product mixes before incurring the expense of a major product introduction.
By adding a direct-to-consumer capability: insurers are bolstering both their marketing and underwriting capability, opening up a channel that is ideally suited to reach underserved market segments, communicating directly with consumers in a cost effective manner, and helping to drive more revenue to the bottom line.
Original version published in On the Risk September, 2007 as Underwriting in the 21st Century: Exploring the Direct-to-Consumer Channel
"Reprinted with permission of ON THE RISK, Journal of the Academy of Life Underwriting www.alu-web.org"
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